A Guide to European Countries with Zero Foreign Income Tax

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It’s common knowledge that taxes can be a massive burden on many expats from all income brackets. Fortunately for them, some countries in Europe impose zero foreign income tax on their citizens and residents. 

You can live, work and enjoy life abroad in all its glory without the concern of how much additional tax you’ll owe on any income earned from work or business activities outside your home country. 

Many European countries concede that their citizens have the right to earn income outside their tax jurisdiction without being subject to additional taxation. Besides, foreign-earned income remitted to a country also positively affects the economy.

If you’re considering relocating to Europe or incorporating a business there, this guide is for you. We will cover each European country that charges zero foreign income tax and what other benefits you can cash in on by living in these places. 

Can you lower taxes on income earned at home and abroad?

Lowering taxes on income earned at home and abroad can be tricky as you’ll need to consider any contrasting tax laws that may exist and how best to communicate with two different tax jurisdictions. The rules for each country can vary, in addition to the regulations for how two separate tax authorities combine taxation.

Countries like the US provide a tax exemption for a specific amount of foreign income earned. If the foreign income is earned in a country that charges zero foreign income tax, then the income will essentially be tax-free up to a certain threshold.

Further tax-saving measures to take advantage of can be used too. Most developed countries provide foreign-earned income tax credits. These credits can offset some or all of the taxes you would otherwise owe on your foreign earnings. Additionally, you may be able to deduct certain expenses related to your foreign earnings, such as housing costs or travel expenses.

The “Expat Tax Trap” and What to Do About It

foreign income tax trap

Entering into a new life of global citizenship comes with many benefits. You get to experience and embrace new cultures in a profound way that holidaymakers only get a taste of. If you’ve ever had the desire to learn a new language, you have the opportunity to immerse yourself in one on a daily basis, which for many of us, is a much more efficient way of learning. 

However, there can also be downsides to living abroad, one of which is navigating the complex tax laws of a foreign country and disclosing your foreign earnings to your home country. Unfortunately, many expats find themselves caught in what is known as the “expat tax trap,” whereby they end up owing taxes in both their home country and their host country.

An even more problematic predicament to find yourself in is basing out of two countries that levy tax on foreign income. You could then be facing an unimaginable tax liability which you’ll want to avoid at all costs.

There are a few ways to avoid or minimize the expat tax trap: 

  • First, you must check the tax laws listed by your home country’s tax authority to see if you are still deemed a tax resident. If you are considered a non-resident, you may be able to claim certain deductions or exemptions or not have to file taxes at all. 
  • Second, take advantage of any tax agreements between your home and host countries. These agreements were made to encourage globalization and international relations. As a result, they can often help reduce or eliminate double taxation. 
  • Finally, consider using a professional tax advisor who can help you plan for and navigate the complexities of taxes for expats. At Global Citizen Solutions, our international migration consultants specialize in strategic planning to reduce taxes for expats and international investors.

Click here to get in touch with one of our specialists today.

How to Avoid Paying Taxes on Offshore Income

There are several ways to avoid paying taxes on offshore income, and the best approach depends on your circumstances. If you’re a resident of a country with no foreign income tax, you can simply remit your offshore earnings to your home country. If you are a resident of a country that imposes worldwide income tax, this is where it becomes a little more complicated.

Foreign income tax exemption

For US expats, the approach to tax avoidance on offshore income is relatively straightforward and well-documented. Whether it’s income from a job or self-employment income, expats with a foreign permanent residence or are conducting business in a foreign country have a taxable income exemption of the first $112,000 of their income earned overseas.

Foreign income tax credit

Further to the tax exemption, by completing Form 1116 with your federal income tax return, you can claim a foreign income tax credit for the taxes you paid to a foreign government.

Zero global income tax countries

Fortunately, Europe has several low-tax countries for expats and other individuals dealing with international finances. Countries in Europe that offer a Golden Visa provide tax incentives for those who possess the visa and do business in the country.

Special residency permits like the Portugal NHR Tax Regime (non-habitual resident) offer several tax-saving benefits, in addition to non-residence status, which has considerable tax benefits in and of itself–we’ll come back to this later.

Other ways of avoiding tax exist. Specific offshore financial accounts like a trust fund, foundation, pension plan, or other retirement accounts in a foreign country can be eligible for special tax exemptions. 

Portugal’s crypto law declares some profits from crypto and other digital assets tax-exempt, provided you meet specific requirements. On the more extreme side of things, an effective – but likely irrevocable – way to reduce your tax is to renounce your citizenship and become a citizen of a low-tax or tax-free country.

While there may be ways to avoid paying taxes on offshore income, it’s important to weigh the risks and rewards before taking any action.

European Countries with Zero Foreign Income Tax

Here is a list of countries that do not impose a tax on the foreign income of their residents and citizens:

Malta

Malta has become a mainstay in conversations about the best countries in Europe with zero foreign income tax. Whether you’re a non-resident or full-time permanent resident living in Malta year-round, the foreign-earned income tax exclusion is 100 percent. In other words, zero tax is levied on income generated outside Malta.

A flat tax rate of 15 percent [with a minimum of €15,000 ($15,900)] is charged on income remitted to the country.

The process of acquiring permanent residence in Malta is also much less bureaucratic than in other European countries. The Malta Golden Visa program facilitates obtaining a residence permit in Malta and access to the many tax benefits of living there.

foreign income tax - malta

You can obtain a Maltese residence permit with a total investment of €380,000 ($403,000) [you can save €50,000 ($53,000) if you invest in South Malta/Gozo] through the purchase of real estate and two non-refundable donations amounting €30,000 ($31,800).

Alternatively, a Maltese residence permit can be obtained with a total investment of €120,000 ($127,000) [you can save €10,000 ($16,600) if you invest in South Malta/Gozo] through a property rental held for at least five years and non-refundable donation of €58,000 ($61,500).

To learn more about the Malta Golden Visa, click here for a full breakdown. 

Andorra

Nestled between Spain and France in the Pyrenees mountains, the micro tax haven of Andorra has been a lifeline for exapts looking to preserve their wealth. Foreign-earned income is tax-exempt up to €24,000 ($25,500). Additionally, foreign-earned income from €24,000 to €40,000 ($42,400) is taxed at five percent, and anything over €40,000 is taxed at ten percent.

Portugal

Many of us would position Portugal at the cusp of progressive globalized tax policies and options for residency. The Portugal NHR Tax Regime (non-habitual resident) offers an escape from the tax trap that thousands of expats and international investors fall into.

The unique aspect of the Portugal NHR Tax Regime is that as a non-habitual resident, you’re permitted to spend more than 183 days in Portugal but are only liable to pay the taxes of a non-resident. Furthermore, the taxes you would be responsible for paying are less than what is charged to habitual Portuguese residents.

Under the Portugal NHR Tax Regime, there is no tax on personal income earned abroad. You can earn global income tax-free as well as capitalize on significantly reduced tax levied on a certain amount of income generated from business activities in Portugal. Some of the benefits include:

  • Special tax treatment for ten years
  • No wealth tax
  • No minimum stay requirement
  • Tax exemption on all foreign income
  • 20 percent tax rate on some Portuguese income

Check out our complete guide to the Portugal NHR Tax Regime.

Monaco

Monaco has long been considered a top country for wealthy individuals to live in. The microstate has favorable tax policies for everyone, from non-residents and residents to corporations. Not only is zero tax levied on income earned outside Monaco, but income earned in the country is also tax-free. Only a corporate tax exists in certain circumstances.

Life in Monaco provides many tax benefits, but living there requires a considerable capital investment. In any case, it is one of the most distinguished tax havens in Europe and around the world for the wealthy and elite.

Gibraltar

The British Overseas Territory of Gibraltar is another one of the few European countries with no tax levied on the worldwide personal income of its residents and non-residents who do business there. Gibraltar is also generally considered a low-tax country with favorable tax policies far beyond income taxes, such as no form of capital gains, inheritance, and wealth tax, in addition to no VAT (Value Added Tax).

foreign income tax - greece

Greece

Greece isn’t technically a “tax-free” country, but the Greek taxation system means that, depending on your level of foreign income, a significant portion of it can be tax-exempt. Greece imposes a relatively high tax rate of 45 percent on local and worldwide income over €40,000 ($42,400), but they offer a significant foreign-earned income exclusion for tax with the option to pay a one-off charge.

A lump-sum payment of €100,000 ($106,000) per year will cover the tax liability on any amount of personal income earned abroad for the entire tax year. In simple terms, whether you earned €200,000 ($212,000) or €2 million ($2.12 million), you can cover your tax liability with a one-off payment of €100,000.

This makes the prospect of joining the Greek tax system highly advantageous, and a straightforward way to do so is through the Greece Golden Visa Program. With investment options such as a real estate purchase in Greece worth at least €500,000 ($106,000) or a minimum capital deposit of €400,000 ($106,000) in a Greek bank, you can become a permanent resident of Greece.

A significant benefit of the Greece Golden visa is that once residency has been maintained for seven years, you’re eligible to apply for Greek citizenship.

For more info on the Greece Golden Visa, check out our article: Ultimate Guide to the Greece Golden Visa 2023.

Bulgaria

Although a tax is charged on foreign-earned income, Bulgaria is one of Europe’s most tax-friendly and lowest-income tax countries. A ten percent flat-rate tax is imposed on all personal income for Bulgarian tax residents.

Worldwide income tax-free countries

European countries are not the only ones where residents can enjoy a tax-free lifestyle on foreign-earned income. Several countries across multiple continents charge no tax on the worldwide income of their residents.

Antigua and Barbuda

The Antigua and Barbuda citizenship by investment program allows individuals to obtain citizenship and permanent residency in the country. No tax on income, inheritance, or capital gains from overseas sources exists.

Singapore

Singapore uses a territorial tax system that exempts worldwide income from being taxed. There is also a tax credit for income remitted to Singapore.

United Arab Emirates

The oil-rich country of the United Arab Emirates is the best Middle Eastern nation for expats who want to settle in a tax-free country and enjoy western comforts. The government levies no income taxes on worldwide or local income for residents of the United Arab Emirates.

EU Tax on Foreign Income for Residents and Non-residents

For people with dual or triple citizenship, the status of citizenship may be held in multiple countries, but the classification of residency isn’t based on citizenship alone. Most European countries have a rule that anyone who spends less than 183 days a year in the country will be considered a non-resident and hence, a non-tax resident.

If you’re an expat from the US, the implications of non-resident status can have significant economic advantages. Non-residence in most circumstances means that even if the country imposes a global income tax, you’re not liable to pay taxes on foreign income.

Although the list of foreign income tax-free countries in Europe 2023 for residents is small, practically all EU countries don’t impose a tax on non-resident’s foreign income, even if they do business in the country:

  • The UK has a black-and-white policy concerning taxes for residents and non-residents. If you are a non-resident in the UK, you are not liable to pay taxes on foreign income earned, no matter the amount.
  • The Netherlands employs a similar system where you’re not required to file a tax return if you’re a non-resident with overseas income.
  • For Luxembourg, like the Netherlands, a tax return is only required for income sourced in Luxembourg.

The tax incentives make Europe an attractive destination for expats and digital nomads looking to save on taxes. As previously covered, tax-saving schemes like the Portugal NHR Tax Regime (non-habitual resident) allow expats to live tax-free lives abroad.

Despite these countries offering significant tax advantages for those looking to minimize their tax burden, remember that they all have different rules and regulations regarding worldwide income taxes, so it’s essential to do your research before making a decision on where to live or work.

Reducing your taxes and diversifying your wealth

There are several ways to go about reducing tax on foreign income, in addition to diversifying your wealth. If you plan to move overseas to reduce taxes and diversify your wealth, several European countries will alleviate tax pressure with zero global income tax policies. 

And while these countries may have different tax laws and regulations, they all share one common goal: To attract foreign investment and business.

Each country has unique benefits and drawbacks, but many European countries are worth considering whether you’re looking for a low-tax or tax-free environment to invest in.

What are territorial taxes?

Territorial taxes are taxes levied by a state on income that is earned within its territory. This type of tax is common in Europe, where many countries have zero or low rates of taxation on foreign income. 

There are several advantages to this system, including the encouragement of investment and economic activity within the country’s borders. Over the last 30 years, most OECD (Organization for Economic Co-operation and Development) nations have transitioned from an arbitrary worldwide taxation system towards a territorial tax system that benefits the government by raising revenue without burdening residents with high tax rates.

Most countries have aimed to reduce barriers to international capital flows and boost the competition among domestically headquartered multinational firms.

A territorial taxation system can have many positive indirect effects by allowing more earnings to circulate in the economy. It prevents companies from borrowing in the US to fund foreign business activities, essentially taking money out of the economy to stimulate another economy.

With the increase in the repatriation of income due to a forward-thinking tax law like territorial taxation, the country can benefit from economic growth across the board, such as more jobs, new business and investment at the local level, and a bigger spending purse for public services.

There are also some disadvantages to a territorial taxation system, such as the potential for abuse by multinational corporations, but the positives far outweigh the negatives with the overall boost it can provide the economy.

Tax Mistakes to Watch Out For

The complexity of taxes often leads people into unfortunate tax predicaments unknowingly. Although you may have been liable to pay taxes on certain income, the prospect of a surprise tax bill is never appealing.

How mistakes can be made will vary from country to country due to differing tax laws and processes of filing taxes, be here are some common mistakes made:

Claiming for ineligible expenses: People often commit the error of claiming for expenses on things related to personal use and not business or work.

Not including all income earned: This process is somewhat simplified for an individual with a salary or one source of income. People with multiple sources of income can forget to include things like interest-based income from credit unions, loans, or dividends.

Incorrect pension contributions: Whether you have a 401k in the US or an ISA in the UK, there is a threshold for tax exemption on pension contributions. Exceeding it can warrant an unexpected tax debt.

Missed deadlines: Self-assessment tax returns in all countries have a deadline for when they need to be submitted. A missed deadline can incur a significant fine or charge related to the taxes owed.

Double Taxation

For anyone interested in becoming a global citizen, the tax trap – technically referred to as double taxation – can be a grave position to find oneself in. The term “double taxation” simply refers to the practice of taxing the same income or asset twice. Double tax can occur when living in two countries that charge tax on foreign-earned income or when investing in foreign companies.

Double tax treaties

Fortunately, with the growth of globalization, many countries now have double tax treaties with one another. A double tax treaty is a bilateral agreement between two countries in which each agrees to provide specific tax concessions to the other.

The primary purpose of a double tax treaty is to eliminate double taxation of income earned in one country by residents of the other country. They may also provide additional tax advantages, such as reduced withholding tax rates on interest or dividends.

foreign income tax

Under a typical double tax treaty, residents of one country (the “source” country) will be exempt from paying tax on certain types of income earned in the other country (the “host” country). This means they will only be taxed on their worldwide income by the source country. Similarly, host country residents will be exempt from paying taxes on certain types of income earned in the source country.

For expert advice on foreign income taxes and double tax treaties, get in touch with one of our migration specialists today.

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Frequently Asked Questions about Foreign Income Tax

Which country in Europe has the lowest income tax?

The European country with the lowest income tax is Bulgaria, which charges a flat rate of ten percent income tax on residents.

Which European country has the best tax system?

The country with the best tax system in Europe will depend on your personal circumstances and needs. Bulgaria has the best low-tax system for income taxes with a flat ten percent tax rate. If you need the best tax system for business, Hungary imposes the lowest corporate tax in the EU, with a corporate tax rate of nine percent. 

The Malta Retirement Programme provides the best tax system for retirees by offering several tax benefits in addition to a low tax rate of 15 percent on overseas retirement income received in the country.


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