Tax residency is a crucial consideration for individuals who move to a new country, as it determines which country has the right to tax their worldwide income. Portugal, Greece, Cyprus, and Malta are some European countries with very attractive tax rates for individuals wishing to relocate and obtain European residency programs by investment. They offer several benefits to foreigners willing to invest in the country. For instance, Portugal has the Non-Habitual Resident 2.0 (NHR) scheme which offers foreign residents and investors reduced tax rates and exemptions on some taxes. Cyprus has a low corporate tax and Malta has an enticing tax system targeting foreign settlers.
In this blog, we’ll explore the unique tax advantages offered by these countries and why they make European residency programs an enticing option.
Comparing Tax Systems in Residency by Investment Countries
Portugal: Attractive tax regime
Portugal provides an attractive tax regime for those who choose to relocate. According to the Portuguese tax law[1] in force since January 2015, an individual is deemed to be resident in Portugal for tax purposes if one meets either of the following conditions:
- Spends more than 183 days, consecutive or not, in Portugal in any 12 months starting or ending in the fiscal year concerned.
- Regardless of spending less than 183 days in Portugal, maintains a residence (i.e. a habitual residence) in Portugal during any day of the period referred above, to use it and keep it as one’s primary residence.
As a rule, the taxpayer will become a resident in Portugal as of the first day of stay in the Portuguese territory and a non-tax resident as of the last day of stay in Portugal, with a few exceptions.
Portugal previously offered the NHR scheme, but it was halted in early 2024. The government has announced the new NHR 2.0 program, but Parliament’s approval is expected soon. Portugal’s new NHR tax regime[2] is called the Fiscal Incentive for Scientific Research and Innovation (IFICI) Program. The regime applies to:
- Individuals who become Portuguese tax residents, under Portuguese domestic law, in a specific year.
- Have not qualified as tax residents in Portugal in any of the previous five years.
- Do not benefit or have benefited from the NHR regime or the former resident regime.
- Carry out activities provided for in the applicable legislation.
The regime shall provide a special 20% rate on net employment income, and business and professional income from the activities identified in the applicable legislation. It also offers an exemption on foreign-sourced employment income, business and professional income, investment income, rental income, and capital gains.
Qualifying for the new tax regime is more difficult as it is reliant on your exercising one of several qualifying roles/activities in Portugal, as follows:
- Teaching in higher education and scientific investigation
- Employment technology and innovation centers
- Employment in organizations benefiting from incentives for productive investment
- Highly qualified professions
- Positions in entities recognized by AICEP, EPE, IAPMEI, or IP as being deemed relevant for the national economy
- Research and development
- Positions in start-ups
- Positions carried out by tax residents in Azores and Madeira – still to be defined under legislation
Differences between Old and New NHR tax regime
| Conditions | NHR 2.0 (IFICI) | Old NHR tax regime |
| Residency requirement | The applicant should not have been a tax resident in Portugal for the previous 5 years | The applicant should not have been a tax resident in Portugal for the previous 5 years |
| Validity period | 10 years non renewable | 10 years |
| Types of income | Tax Treatment | |
| Employment income (High-Value Added Activities) | Flat rate of 20% on eligible activities | Flat rate of 20% on eligible activities + eligible entities) |
| Pension income | 10% fixed rate | 10% |
| Rental income & Royalties | There is an exemption (depending on if it is taxable abroad under DTA or OECD Tax Model) | Exempt |
| Dividends & Interest
|
There is an exemption (depending on if it is taxable abroad under DTA or OECD Tax Model) | Exempt |
| Capital gains | There is an exemption (depending on if it is taxable abroad under DTA or OECD Tax Model). Gains from the sale of moveable assets are not an exemption, typically. | Exempt |
In conclusion, the new NHR regime retains exemptions based on international tax treaties such as DTA and OECD, while the old scheme offered broader exemptions. The new regime limits exemption on capital gains from the sale of movable assets, whereas the old regime fully exempts capital gains.
The investment fund option for the Portuguese Golden visa does not lead to hefty fees and taxes as investing in a fund is exempt from the IMI Transfer tax, stamp duty, notary cost, exit fees, and commission. Income generated by the fund may be exempt from withholding tax, especially for investors not residing in Portugal.
In contrast, Property owners in Portugal must pay an annual tax rate known as Imposto Municipal Sobre Imoveis, or IMI[3]. The kind, age, and location of the real estate determine the IMI tax rate, which varies from 0.3 to 0.8 percent.
The rental income from Portuguese real estate is always subject to taxation in Portugal, regardless of where the investor lives. There is a 28 percent flat tax on net rental revenue. Investors can deduct IMI, maintenance and repair charges, and this tax amount.
Greece: Numerous tax benefits
A Greek Golden Visa does not automatically make the holder a tax resident in Greece. For non-residents who hold a Greek Golden Visa but do not spend significant time in Greece, taxes are only applied to Greek-sourced income, such as rental income or property-related earnings. Double-taxation treaties may also apply, preventing taxes from being paid twice on the same income. Taxes are only applied if the individual spends more than 183 days per year in the country. If you do become a tax resident[1], the following taxes apply:
- Income Tax: Greek residents are taxed on their worldwide income, with rates ranging from 9% to 44%, depending on income levels. Non-residents are taxed only on income earned in Greece.
- Capital Gains Tax: Capital gains from selling property in Greece are taxed at a rate of 15%.
- Property Tax: Property owners must pay an annual property tax (ENFIA), calculated based on the size and location of the property.
- VAT (Value-Added Tax): A standard VAT rate of 24% applies to goods and services purchased within Greece.
To attract high-net-worth individuals, alternative taxation on foreign source income earned by individuals (and/or their relatives) who transfer their tax residence to Greece is introduced[2]. Individuals who will utilize the alternative taxation method should pay:
- A lump sum tax of €100,000 on an annual basis, regardless of the level of their foreign source income.
- A lump sum tax of €20,000 on an annual basis, in case a relative utilizes respective provisions.
The Greek source income of the individuals subject to the alternative taxation method should be reported in the annual income tax return and taxed according to its classification, although their foreign source income is not subject to reporting and is taxed based on the lump sum tax. It is worth mentioning that settlement of the annual lump sum tax exhausts any further tax liability for the individual on their foreign source income, whilst any tax paid abroad is not offset against any Greek tax liabilities (e.g. no Foreign Tax Credit (FTC) is available). Furthermore, this individual is exempt from inheritance and donations tax on any foreign assets.
Read Also: 10 Advantages of Choosing Portugal Your Home
Cyprus: Favorable tax regime
Cyprus Golden Visa holders benefit from a relatively favorable tax regime compared to other EU countries. Cyprus has double taxation agreements with over 60 countries. To become a tax resident in Cyprus, investors must stay in the country for more than 183 days in a tax year or meet the “60 days rule” (stay in Cyprus for at least 60 days, have other ties to Cyprus, and not be tax residents elsewhere). Income tax rates[3] in Cyprus are progressive, ranging from 0% to 35%. Income up to €19,500 is not taxed.
Capital Gains Tax applies primarily to the sale of real estate in Cyprus. The first €85,000 of gains is exempt, and a rate of 20% applies to gains exceeding this threshold. The corporate tax rate[4] is one of the lowest in Europe at 12.5%. A company does not pay tax if it receives income from dividends, exchange rate differences, securities transactions, or a foreign branch of a Cypriot company. Employees with an annual salary of more than €55,000 will be able to use the right to pay half the tax.
Investors becoming Cyprus tax residents are exempted from inheritance, wealth, or gift tax and tax on interest or dividend income.
Malta: Remarkable tax incentives
Residents holding Malta Golden Visa, officially known as the Malta Permanent Residence Programme (MPRP), are subject to a specific tax framework.
Income is taxable[5] at graduated progressive rates, ranging from 0% to 35%. The 35% tax bracket is reached at an annual chargeable income above EUR 60,000. Companies are subject to income tax at a flat rate of 35%. There is no corporate tax structure separate from income tax. Dividends and capital gains resulting from a participating holding are tax-free in Malta under the participation exemption. This might make it more appealing to holding business. Malta has signed double taxation treaties with over 70 countries, therefore, firms operating in it can benefit from double taxation relief on their overseas revenues.
Malta does not impose any inheritance tax, interest tax, or wealth tax, so residents do not need to worry about taxes on worldwide assets. No capital gains tax is applied on gains made from the sale of assets outside Malta, provided they are not remitted to Malta. Capital gains on property sales within Malta are taxed if sold within five years of acquisition (typically at 8%).
Sources
[1] https://taxsummaries.pwc.com/portugal/individual/residence
[2] https://taxsummaries.pwc.com/portugal/individual/significant-developments
[3] https://taxsummaries.pwc.com/portugal/corporate/other-taxes
[4] https://taxsummaries.pwc.com/greece/individual/taxes-on-personal-income
[5] https://assets.kpmg.com/content/dam/kpmg/gr/pdf/2023/03/gr-special-tax-regimes-2023.pdf
[6] https://taxsummaries.pwc.com/cyprus/individual/taxes-on-personal-income
[7] https://taxsummaries.pwc.com/cyprus/corporate/taxes-on-corporate-income
[8] https://taxsummaries.pwc.com/malta/individual/taxes-on-personal-income