Preferential tax rates in Europe

EU countries have high taxes. For example, the maximum income tax rate is 44% in Greece and 48% in Portugal. But residents can optimise their taxes through special tax regimes. See how to reduce the amount of tax payments in European countries.

2 main things that affect income tax in Europe

Double tax treaties (DTTs) are agreements between states. They regulate taxation for people and companies that earn income in one country and, at the same time, are tax residents of another.

DTTs allow investors to reduce their tax burden: they do not need to pay taxes in two countries in full.

As a rule, European states have DTTs with many countries, making the tax jurisdiction change more profitable. Thus, Malta has signed DTTs with 76 countries, while Portugal has 81 agreements.

Domicile affects the tax base and rates. This concept implies the country of permanent residence. Domicile is assigned at birth, most often according to the father’s domicile; it can be changed over a lifetime.

To obtain domicile in the chosen country, one usually must fulfil several conditions. For example, you need to live for 17 years in Cyprus. In Malta, you need to break ties with other countries and confirm your intention to return to the country in the future.

A person domiciled in a certain country can be its tax resident or non-resident. Relocation for several months or years rarely results in a change of domicile.

In some states, non-domicile tax residents enjoy tax benefits offered under the residence by investment programs.

mt-flagMalta residence permit for tax optimisation

In Malta, investors can get a residence permit, permanent residence or citizenship by naturalisation for exceptional services by direct investment. A special tax regime is provided only for investors with residence permits. Citizens of non-EU countries obtain them through the Malta Global Residence Programme.

The tax on income from foreign sources received in Malta is 15%. The minimum tax amount is €15,000 per year.

There is no tax on income earned abroad and not transferred to Malta. Income derived from Maltese sources is subject to income tax at 35%.

The following applicants can participate in the Malta Global Residence Programme:

  • an investor with legal income enough to support their family;

  • without criminal records;

  • with health insurance valid in the EU;

  • with proficiency in Maltese or English at a conversational level.

A spouse, children under 25 and other financially dependent relatives (namely, parents, grandparents or siblings) can get residence permits with the main applicant.

To obtain a residence permit, an investor buys a property for at least €220,000 or rents housing for at least €8,750 per year. They also pay an administrative fee of €5,500 if the investor purchased property on the island of Gozo or in the south of Malta or €6,000 in other cases.

It is optional to live in the country to maintain tax residence and retain a residence permit in Malta. But you can not spend more than 183 days a year in any other country.

No special tax benefits exist for investors with Malta permanent residence or citizenship obtained for exceptional services by direct investment. They spend at least 183 days a year in the country to become Maltese tax residents.

Income tax for residents without benefits is calculated on a progressive scale. The rate is up to 35%. The tax amount depends on the family composition and tax deduction. The deduction is up to €9,905 per year.

Malta permanent residence or citizenship doesn’t oblige the investor to become a tax resident. Non-residents pay tax only on income earned in Malta. The income tax rate is up to 35%; it depends on the annual income.

Material prepared by an expert

Frequently asked questions

  • How much do you get taxed in Europe?

    Tax rates in Europe differ from country to country. Minimum VAT in Europe is 15% but there is no limit on how high it can be.

    Corporate tax rates also depend on the country. Hungary and Montenegro have the lowest one — 9%.

    Montenegro has the lowest income tax rate of 9%. At the same time, Finland has the highest income tax rate — 56,95%. In Malta and Cyprus, countries with the residence by investment programs, income tax is up to 35%.

    In Portugal income tax can reach 48%. However with a Non-Habitual status Portugues residents are able to drastically reduce income tax.

  • Which EU country has the highest personal tax?

  • Which EU country has no income tax?

    All EU countries have income tax. However, Monaco that is strongly tied with the European Union has none.

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