In this article, you can read about three countries in which, if you’re a foreigner and not a citizen, you can live practically tax-free. If you’re not sure you read that right, yes, you can avoid taxes in Europe, all thanks to Great Britain, Ireland, and Malta.
I’ll let Christoph take it from here.
Here you have a short video introduction by Christoph:
Malta is a country with a good climate, beautiful natural surroundings, and a rich history and culture. The quality of life, low prices, and good connections with other European cities (around €80 return to Madrid and Barcelona) make this small group of three islands (Malta, Gozo, and Comino) a very attractive option for any traveller or digital nomad.
But as you can guess, that’s not the only reason why Malta is an attractive option.
It was an English colony until 1964, and there’s no denying that the influence is still felt here. This isn’t just obvious in the fact that they drive on the left, have red telephone boxes (photo taken in Victoria, Gozo), and use English as the official language; there’s also the little-known, but therefore very interesting, clause in its tax law.
Malta assesses for tax using a so-called remittance tax system. In short, income earned abroad that isn’t transferred to Malta is tax-free.
But Malta isn’t the only country within the European Union that recognises remittance tax, although it’s here that this system is interpreted most liberally.
If you prefer rolling green hills to barren Mediterranean rocks, you can also take advantage of similar regulations in Ireland.
And if you prefer a more classic option, you can move to the United Kingdom, although the conditions there are a little less favourable (at least until we see what happens with Brexit).
For citizens in the EU, these countries are the simplest ticket to escaping taxes. Thanks to freedom of establishment for EU citizens, setting up shop in your country of choice is easy.
Domicile and residence – 2 important terms in the remittance tax system
Since some time ago, under non-dom status, British and foreign citizens have been able to live on the island and spend their income without paying tax on it, and with no interference from the tax office.
This is no longer possible for the British (which is why they go to Malta now). In fact, foreigners who live in England in the long term and want to continue to benefit from non-dom status are also required to pay; beginning in their ninth year, this constitutes a general yearly tax of £30,000, which can rise to £90,000 a year as the length of stay increases. Of course, this is just pocket money for most of the oligarchs and sheikhs living in London (have you ever wondered why so many rich people have moved to the capital?).
Nevertheless, you can stay in the UK for up to 9 years without paying taxes.
To be able to benefit from these regulations, you have to understand how the remittance tax system came about and how it works in practice. There are two fundamental concepts of British law in play here: domicile (your fiscal and social address) and residence (your habitual address).
Non-dom status has existed since 1799, when Prime Minister William Pitt introduced income tax to finance the Empire’s wars around the world. But in order to encourage investment in the colonies, Pitt promised not to tax income derived from the colonies, as long as this money never found its way to England. That way, manufacturers could continue to produce sugar in the Caribbean and tea in India, without the profits from these operations being taxed.
Nowadays, this concept only exists for foreigners. But since there are three countries that use this system, anyone has the opportunity to acquire foreigner status. For income from abroad to be taxable, the person has to be both domiciled and a resident.
If you’re not of British origin, you can be a resident in the country (i.e., live there) without being domiciled (i.e., a long-term resident).
Only if you are domiciled will your income be taxed in the UK. Meanwhile, non-doms only have to pay tax on income earned in Britain, on condition that foreign income isn’t brought into Britain or spent there (for example, using a foreign credit card).
The basic rule is: everything that comes into Britain (or Ireland, or Malta) is taxed there.
In the British judicial system, your domicile is generally defined by your father’s country of birth. Anyone who was born in any country outside the UK, Ireland, or Malta, won’t already be domiciled in their non-dom country of choice. This is true even if they’ve lived there for decades.
You can only adopt domiciled status if you voluntarily choose to obtain it. To do this, you have to write a testimony in the country confirming your intention to be buried there, or promising to bid farewell to your country of birth and never return.
This means that it’s usually easy for foreigners not to be classed as domiciled, which comes with huge tax advantages, even if they’ve been a resident for decades.
What kinds of taxes can you avoid with non-dom status?
In theory, all kinds of income earned abroad are tax-exempt (free from income tax, capital gains tax, etc.), as long as they don’t originate from work carried out in your country of residence (either Britain, Ireland, or Malta) and that they remain abroad. In addition, the source of your income cannot be located in the country you live in.
Income you don’t have to pay tax on includes:
- capital gains
- licensing revenue
- income from work carried out abroad that is unrelated to your country of residence (i.e., neither the employer, the client, or the contractor live there)
An additional advantage of the regulations is that capital that predates the moment you moved to the non-dom country can be transferred and used there tax-free. This can be done at any time, as long as you can prove the capital existed before you changed residence, and isn’t revenue generated since then.
Let’s examine 3 practical examples to illustrate all this:
- Mr. Pérez lives in Malta and is the only partner of a company in Hong Kong that offers consulting services to Asian clients. The Hong Kong company generates tax-free profits of €200,000 (since Hong Kong is a tax haven). Mr. Pérez transfers €60,000 of his profits to Malta. The rest goes to his private account in Hong Kong. Income tax is applied to the €60,000 he transferred to Malta, and the rest is tax-free. He pays 25% income tax on this €60,000 in Malta, since the maximum rate of 35% affects sums that are higher than his.
- Mrs. López lives in Dublin and has €2m in equity investments in a bank in Liechtenstein. Her money is distributed into stocks, shares in investment funds, and bonds. This generates an annual income of €200,000. She withdraws small sums of money from ATMs during her many international trips. She doesn’t pay any tax in Ireland.
- Mr. García lives in London and works for an offshore service provider. For four months of the year, he works in his employer’s office in the Bahamas. The money he earns there is transferred as gross to his account on the Isle of Man, which is independent from Britain for these purposes. This money isn’t taxed in the UK. Mr. García uses Bitcoin (a currency that we’ll discuss another time) to access his money.
As you can see, the possible combinations are endless.
If you earn your income from an online business, live off a large inheritance, or finance your retirement with capital gains or rent, you could benefit greatly from living as a non-dom in Malta, Ireland, or Great Britain.
Naturally, the countries are different, and there are a couple extra details to take into account.
Things to bear in mind when you receive money in the country you live in as a non-dom
As we mentioned, only foreign income that ISN’T transferred to your new country of residence (in this case to a domestic account or deposit) is tax-free. This raises the question of whether you really need to introduce this income into the country.
Firstly, your original assets are unaffected by these regulations. In other words, you can bring enough money into your country of residence when you arrive. Remember, you only pay taxes on new income.
Secondly, you always have the option of withdrawing money from ATMs outside the country or stocking up on Bitcoin, which isn’t prohibited at the time of writing.
If your aim is to invest and multiply your capital, it’s best to choose a State where capital gains and dividends are tax-free, although even Britain and Malta wouldn’t be a bad choice in this respect.
Malta, Great Britain, or Ireland – which country has the best non-dom programme?
Although the underlying concepts are similar, the local provisions for non-doms vary considerably depending on the country. So which is the best country to take up residence in long-term without paying taxes?
Although the freedom of establishment clause means that immigration regulations barely affect European citizens (whether this will still be the case for Britain remains to be seen), there are nevertheless many individual features to take into account.
I personally love Malta. But it’s too small for me to consider living there for several years, and as a young person, it offers me few options.
Having said that, Malta has the best local regulations for non-doms. It’s the only one of the three States that doesn’t require you to declare your non-dom status on your tax return.
You only have to declare foreign income that you bring to Malta. If income doesn’t arrive from abroad, the State won’t even have a record that you’re a non-dom taxpayer.
Another advantage is that in Malta, you can even transfer capital gains from abroad without them being taxed, although naturally, taxes may be demanded in their countries of origin.
As in Ireland, and unlike the UK, Malta doesn’t have any time limit on non-dom status. There are also no general taxes. You can therefore live for more than 9 years in Malta and Ireland without paying the £30,000 sum necessary to retain non-dom status in Britain.
Malta is also a very attractive option for offshoring a potential business, because with only a 5% corporate tax in effect, it has the lowest tax rate in the EU. Although under normal circumstances, you’re only entitled to non-dom status if you have foreign income, with the help of an offshore holding company and the right strategy, non-dom taxpayers can also benefit from having a company in Malta. The dividends generated by this holding company will be tax-free. In Malta, this is contained in an exception to the rules of the remittance base, which are otherwise very simple.
On the other hand, Ireland has no reason to be jealous of Malta. While Britain has toughened its rules, especially in 2008, Ireland has relaxed its own. Their goal is clear: to encourage non-doms on the island next door to emigrate.
Ireland lets you invest money in London and generate income there, which you can then transfer and use tax-free in Ireland.
Conversely, however, non-doms in Britain have to pay tax on any kind of capital gains deriving from Ireland, even if these aren’t transferred to Britain.
In conclusion, although Malta is the best country as far as pure non-dom status is concerned, Ireland isn’t far behind. In fact, even Britain itself is still a good option, since living in England for 9 years may be enough for you, or perhaps because you can easily shrug off the general flat tax of £30,000.
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