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How to Live in the EU Optimizing Your Taxes and Not Die in the Process
Making money is not an easy job. We work hard, and we can create enormous wealth. However, there is a bitter pill, we must pay a ton of taxes on everything we earn with our sweat and effort; you cannot avoid it... Or can you?
Today, in Mundo, we want to talk to you about one of the best options if you want to get the most out of your income and protect it from any government wanting to get its hand on it.
No, we are not talking about tax evasion, which would be illegal. We are talking about reliable strategies to take advantage of the best tax schemes globally; more specifically, in this case, we will talk about non-dom regimes.
What is a Non-Dom regime?
By now, you must be wondering what this is, let's explain. When it comes to tax residency, the days of nomads with no specific tax residency are over. Thus, your tax residency will be considered the country where you have your residence. For example, in some cases, your country of residence will correspond to where you were born. In others, it will be the country where you live or spend more time.
However, some countries establish a difference between residency and domicile. And here is where non-dom regimes come into the picture.
It is one thing to be a resident of a country and another to actually live and be domiciled in that country. More and more we see the rise of people who spend much of their lives constantly traveling, having businesses in different places, and not belonging for a long time in one place.
There is a special treatment for these people who may be tax residents in some countries but are not necessarily “domiciled” in it. Hence the term Non-Dom (Non domiciliated) was born. Even if you have a private residence with all its benefits, being fiscally linked to one of these places that usually provide exemptions and incentives, can significantly benefit you and your assets.
There are many countries with this kind of regime, partly thanks to the United Kingdom’s influence and the common-law systems. Many Commonwealth countries have Non-dom statutes, including EU members like Cyprus, Malta, and Ireland.
But this is not just a British strategy. Many other countries with civil law systems, such as Portugal or Greece, have adopted similar measures to encourage foreign investment and the boarding of high-value individuals so that they become attractive to people like you.
What are the Non-Dom options?
As mentioned a moment ago, many countries worldwide have adopted Non-Dom systems, each with its own particularities. We took the task of meticulously analyzing each of these systems to show you the most attractive options currently available so that you can make an effective decision quickly. Here, we will explain to you how the best European non-dom regimes work.
Do you have questions?
The first is Malta, a Mediterranean paradise located between Italy and North Africa. It has one of the best Golden Visa programs, including a top non-dom regime.
Its tax system indeed is one of the most complex and sophisticated in Europe. However, let's do a simple review to understand how to take advantage of it. Malta has a flat tax rate of 15% for individuals in the non-dom regime. This rate will be applied to the following types of income:
- All profits earned abroad that are remitted to Malta except for capital gains.
- All capital gains income derived from Malta.
- All revenues generated in Malta.
With this clear, we are already in an engaging scenario. You lower your tax rates to a lower range than many other countries within the OECD and the EU. For example, Germany has a top tax rate of 42%, Mexico has a top tax rate of 35%, and Spain has a top income tax rate of 45%.
Plus, Malta also enjoys more than 80 double taxation agreements, including the USA, China, Russia, Germany, France, and the UK.
Now, this is not so simple; otherwise, we would all already be in Malta enjoying the Mediterranean while knowing that our money is safe. To get the Maltese residency and to be able to apply for the non-dom regime, you have two options:
Citizenship by investment program in Malta, in which you would have to meet the following requirements:
- Donate €650,000, plus €25,000 in case you have a partner, €25,000 extra for each child under 18 years old and €50,000 extra for each child over 18 years old or the parents or grandparents of the applicants.
- Make a minimum investment of €150,000 in Maltese bonds or shares.
- Acquire a property valued at a minimum of €350,000 or rent one whose annual cost is at least €16,000.
- Obtain a minimum health insurance coverage of €50,000 for all applicants.
If you don´t like this one you can go for the other option, which is Indefinite Residency. You can obtain this status by fulfilling the following requirements:
- Invest €250.000 in Malta government bonds and keep them for at least 5 years.
- Make a contribution of €30,000 to the state funds.
- Purchase or rent a property in Malta for personal use.
- Present an affidavit of wealth and get comprehensive health insurance.
Whichever option you choose, you will be able to enjoy the benefits of being a resident in Malta, including its great non-domiciliary advantages.
Portugal is one of those surprising names that come up when researching tax optimization places. How is it that a place that can charge up to 48% in personal taxes will help me optimize my income? Well, like many things in life, the devil is in the details. That's why at Mundo, we take care of guiding you through all these hidden corners of Portuguese law.
Let's start with the basics. Unlike the case of Malta, there is no citizenship by investment system. However, Portugal has one of the most attractive "Golden visa" programs globally, especially in Europe. This is due to its flexibility; you have the possibility of obtaining one of the coveted visas to reside legally in Portugal, even, eventually, at zero cost if you make the right investments. To opt for the residence, you must meet one of the following criteria:
- Minimum investment of EUR 280,000 to EUR 500,000, which depends on the property’s condition. Keep the property for at least five years.
- Investment from EUR 350,000 to EUR 1,000,000, depending on whether it is in an investment fund, a company, or a financial institution.
- Incorporate or obtain a company with ten employees, or invest 350,000 EUR in research, or donate 250,000 EUR to the cultural sector.
As we can see, there are many ways to obtain a Portuguese residency by investment. However, this is only the beginning; you are just completing the first step. After obtaining residency, we must understand its tax system in order not to be ruined in the process. Right after acquiring your new tax resident status, you can apply to an NHR status (Non-Habitual Resident), as long as you have not had tax residency in Portugal in at least the previous five years.
This non-resident status can be extended even for ten years.
Now, what benefits does NHR give you tax-wise? Well, in general terms, it all depends on where you are obtaining capital. If your source of income is in Portugal, you will have to pay the following taxes:
- A flat rate of 20% depending on your profession. This includes investors, managers, directors, doctors, accountants, engineers, and many others.
- 28% deduction on rental income tax.
- 50% capital gains tax exemption.
These advantages, over what the average citizen would pay, sound good, but not amazing, so what about when we look at foreign income?
- If you are employed in one of the above professions, you pay 20%.
- If you are self-employed you can be exempt from taxation as long as the country of origin has a double taxation agreement (DTA) with Portugal.
- Income and royalties on financial assets are completely exempt if they come from a country that is not blacklisted as a tax haven.
- Income from real estate or capital gains is fully exempt as long as it does not come from a blacklisted country.
- Fully exempt pension income if it comes from a DTA country.
All this, in addition to an exemption to capital, wealth, inheritance, or gift taxes, makes Portugal an attractive option.
As you can see, the trick and the benefit of the NHR is the income received from abroad. If you have an NHR status, you are exempted from paying taxes from foreign sources. So, for example, you can generate 100.000 EUR in capital gains in Malta. If you take them to Portugal, you will pay 0% tax for them in Portugal. You’d only have to declare 3.5% Social Security, and that's it.
Now, remember what we mentioned about gifts, estates, and inheritance? You can protect your entire family's wealth almost in perpetuity and increase it by paying, at most, 3.5% in taxes. And you can even take your overall tax optimization strategy to the next level if you establish a Madeira trust or company. If you want to know more about these options and the residency in Portugal, check out our Country Page.
Lastly, we have Cyprus. It offers the best non-dom regime for many specialists, especially if you have significant earnings deriving from dividends and capital gains.
It is a good option for anyone who wants to obtain excellent entry conditions, the possibility of entering a thriving market with an enviable tax regime, and where you can even receive a residency that gives you access to the entire EU in a short time.
Cyprus established its non-dom system in 2015 to position itself as the ideal destination for anyone who wanted to optimize their taxes. Plus, you don’t necessarily need to spend 183 days to become a Cyprus tax resident. You can become a tax resident if you comply with the 60-day rule. The main conditions are:
- Stay at least 60 days in Cyprus.
- Don’t stay more than 183 days in any other jurisdiction.
- Carry out business in Cyprus.
- Have a permanent residency in Cyprus.
This will lead you to become a tax resident in Cyprus. With this, you can be considered for the non-dom regime for 17 years. This will provide you with the following benefits:
- An exemption on SDC taxes levied on all passive income (rental, dividend received by the person in ranges from 17% to 30%). With this, you will be able to receive your interest and dividends completely tax-free.
- 50% exemption over employment income tax in Cyprus if the income exceeds 100,000 euros.
- Partial or total reduction on dividends, interest, royalties, and pensions from foreign sources depending on double taxation treaties (Cyprus has more than 60 such agreements).
All these benefits are at your fingertips; if we add to this the ease with which you can obtain a permanent residence in Cyprus, everything becomes even more interesting. Cyprus currently has one of the best Golden Visa programs in the world.
You can acquire Cypriot residency by buying real estate and fulfilling simple requirements such as:
- Purchasing a property valued at a minimum of €300,000.
- Demonstrate an annual income of at least €30,000 outside Cyprus.
- Maintain €30,000 in your Cyprus bank account for at least 3 years.
With this, all the non-dom regime benefits will be available to you. Remember that if you want to know more about obtaining a Cyprus residency with all its advantages you can read our Country Page.
Where to go?
It all depends on your specific conditions. If you have a profession of interest or make one of the eligible investments, you receive benefits from mostly foreign sources, and you are not interested in a second passport immediately, Portugal may be the best option for the moment.
On the other hand, if you have businesses in various places such as China, Russia, or the USA, if you need a passport soon to enter the European market, and if your income comes from the net income of your companies rather than the dividends from your investments, Malta is the place for you.
Finally, if your profile is highly financial and you want, over everything else, the best tax optimization, Cyprus awaits you.
Whatever the case may be, here at Mundo, we have first-class experts in each of these areas to advise you and help you optimize your income, whatever your profile may be. Contact us right now.
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