The Non-Habitual Resident (NHR) regime in Portugal, once attractive for expatriates due to its tax benefits, as of January 2024 primarily benefits employees in the Research and Development (R&D) sectors.
This shift has created challenges for those who relied on the NHR to reduce their tax obligations, leading many to seek other jurisdictions with low taxation.
In this article, we cover popular tax-friendly options like Cyprus, Malta, Spain, and the UAE, where you can enjoy tax savings through special rules and territorial tax systems.
At TaxMove, we help you to benefit from these opportunities and find the perfect tax plan for your needs. Whether you are thinking about moving to a new country or just want to improve your tax situation, our tax experts help you at every stage.
Modifications to the NHR Regime (IFICI)
Portugal’s NHR regime once provided broad tax exemptions, including a flat 20% personal income tax rate for certain high-value professions and exemptions on foreign income for ten years.
However, with recent amendments only highly skilled professionals are eligible to benefit from the IFICI/NHR 2.0 regime if they are employed by qualifying companies. These include certified tech and innovation hubs, recognized start-ups, and businesses benefiting from investment incentives like Portugal’s Investment Support Tax Regime (RFAI).
This change shows Portugal’s plan to boost innovation by attracting highly skilled workers in certain industries. However, for many people who don’t fit into these categories, the NHR regime no longer offers the same tax benefits.
As a result, expatriates, retirees, and other professionals now need to explore other countries for better tax conditions. Below is a list of several countries that offer low or no personal income taxes designed to meet different needs and professions.
Alternatives to the NHR Regime
Several countries present attractive alternatives to Portugal’s revised NHR regime, providing tax benefits through different systems and incentives. Below are the options, focusing on the specific tax regimes available in each country.
Cyprus: The Non-Dom Status
Non-Dom status in Cyprus is available to tax residents who have not lived in the country for 17 of the last 20 years before the relevant tax year. This status is commonly granted to individuals who have moved to Cyprus, including native residents and are generally regarded as domiciled abroad.
This tax scheme allows non-domiciled residents to benefit from significant tax reductions, including exemption from the Special Defense Contribution (SDC) for up to 17 years. As a result, they are not taxed on dividends, interest, or capital gains during this period.
However, non-dom residents are required to contribute 2.65% of their income towards the General Health System (GHS), capped at EUR 4,770. This cap applies to a maximum total income of EUR 180,000 from dividends, interest, and capital gains.
With over 60 Double Tax Treaties (DTTs) in place, Cyprus ensures that foreign income is not taxed twice.
Its soft Controlled Foreign Corporation (CFC) rules, absence of exit tax rules and inheritance and wealth tax further enhance its appeal as a tax-efficient jurisdiction.
Malta: The Non-Dom Regime
The non-domiciled (Non-Dom) tax regime in Malta offers favorable tax benefits to individuals who are not domiciled in the country. Under this regime, they are only taxed on income earned within Malta or brought into Malta, rather than being taxed on their worldwide income.
For those with foreign income exceeding €35,000 that is not remitted to Malta, a minimum tax of €5,000 applies. Capital gains made outside Malta are not taxed.
Furthermore, Malta offers the Global Residence Program (GRP) and the Residency Program (TRP) for high-net-worth individuals. These special regimes offer tax benefits and residency. To qualify, applicants must either purchase property worth at least €275,000 or rent one with an annual rent of €9,600, maintain health insurance, and show stable income. The program requires a minimum annual tax of €15,000, with foreign income brought into Malta taxed at 15%, while income earned abroad but not remitted remains untaxed. Capital gains made outside Malta are also not taxed.
Applicants must also have a minimum annual income of €100,000, a net worth of €300,000, and own or rent a residential property in Malta.
Malta has signed over 70 Double Tax Treaties, which prevent double taxation on income earned abroad.
Its soft CFC rules and absence of inheritance and wealth tax make Malta an attractive destination for those seeking to optimize their tax liabilities.
Spain: The Beckham Law
Spain’s Beckham Law offers a tax incentive to foreign workers who relocate to Spain, allowing them to be taxed at a flat rate of 24% on their employment income for six years.
Furthermore, individuals benefiting from this special regime are only taxed on their income earned in Spain, with no tax on global passive income, except for employment income, which is taxed worldwide.
This regime is particularly popular among high-earning professionals, such as those in sports and entertainment.
The Spanish Double Tax Treaty network does not apply to individuals who are enjoying the Beckham Law.
CFC rules, exit tax, wealth and inheritance tax are not applicable while benefiting from this regime.
Bulgaria: Flat 10% Tax Rate
Bulgaria offers one of the lowest personal income tax rates in the European Union, with a flat 10% rate applicable to both residents and non-residents.
Bulgaria has signed over 70 Double Tax Treaties, which help mitigate the risk of double taxation.
The country also has CFC rules but does not impose exit tax, inheritance tax, or wealth tax making it a straightforward option for tax optimization.
United Arab Emirates: Tax-Free Haven
The United Arab Emirates (UAE) is a tax-free haven, with no personal income tax for residents.
UAE has signed more than 140 Double Tax Treaties making it an attractive destination for those operating globally.
The UAE does not enforce CFC rules, exit tax, inheritance tax, or wealth tax providing a highly favorable environment for wealth preservation.
Obtaining residency in the UAE is relatively straightforward, with an investor visa granted upon incorporation of an entity in the country.
Panama: Territorial Tax System
Panama operates a territorial tax system, meaning that only income earned within Panama is subject to taxation. This system exempts foreign income from tax, making it an attractive option for expatriates with substantial foreign earnings.
Panama has signed several Double Tax Treaties, although its territorial system ensures that foreign income remains untaxed regardless of treaty provisions.
Panama does not enforce CFC rules, exit tax, inheritance tax, or wealth tax providing a highly favorable environment for wealth preservation.
The country also offers various visa options, including the Friendly Nations Visa, which facilitates easy residency for those from certain countries.
Costa Rica: Territorial Tax System
Costa Rica follows a territorial tax system, which exempts foreign income from taxation. This makes it an appealing destination for expatriates and retirees who have income sources from abroad.
The amount of Double Tax Treaties signed by Costa Rica is very limited, which means that those operating globally should carefully analyze their situation.
Costa Rica does not enforce CFC rules, exit tax, inheritance tax, or wealth tax providing a highly favorable environment for wealth preservation.
Costa Rica offers several visa options, including the Rentista Visa, which is designed for individuals with stable income from foreign sources.
Paraguay: Easiest Residency with Territorial Tax System
Paraguay offers a territorial tax system, meaning that only income earned within the country is subject to taxation.
Foreign income is exempt, making Paraguay an attractive jurisdiction for those seeking tax efficiency.
The amount of Double Tax Treaties signed by Paraguay is very limited, which means that those operating globally should carefully analyze their situation.
Paraguay does not enforce CFC rules, exit tax, inheritance tax, or wealth tax providing a highly favorable environment for wealth preservation.
The process of obtaining residency in Paraguay is one of the easiest in Latin America, adding to its appeal as a low-tax destination.
Dominican Republic: Territorial Tax System
The Dominican Republic also operates a territorial tax system, which exempts foreign income from taxation.
This system, combined with the country’s favorable climate, makes it a popular destination for expatriates and retirees.
The amount of Double Tax Treaties signed by the Dominican Republic is very limited, which means that those operating globally should carefully analyze their situation.
The Dominican Republic does not enforce CFC rules, exit tax, inheritance tax, or wealth tax providing a highly favorable environment for wealth preservation.
The Dominican Republic offers several visa types, including the Investor and Pensionado Visa, which is ideal for retirees seeking a tax-efficient residency.
How TaxMove Can Help You?
Choosing the most suitable low-tax or zero-tax jurisdiction can be challenging, especially with the recent changes to Portugal’s NHR regime. At TaxMove, we specialize in helping individuals and businesses find the most suitable tax jurisdictions to minimize their liabilities.
Whether you are considering relocating to Cyprus, Malta, or any of the other countries mentioned, our team of experts provides expert services according to your requirements and business scope.
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