Top 10 European Tax Havens of 2022

Dec 08, 2023 By Triston Martin

Tax havens have a reputation for significantly lowering or eliminating taxes that would otherwise be owed to domestic tax authorities if the funds had not been deposited in offshore accounts. Tax avoidance has transferred up to $32 trillion of private wealth into offshore safe havens worldwide.

How do tax havens work?

What is meant by tax haven countries, and how do tax havens work for people like you and me?

A tax haven & "offshore financial center" is a country (or state) where foreign investors pay taxes at extremely low rates or almost none. Businesses & other investors can avoid paying taxes in countries with high tax rates by moving their money into or through tax havens. To take advantage of a tax haven's policies, residency, or business presence is often unnecessary (though it might be in tax-free countries).

The massive inflow of funds encourages economic growth in the tax haven countries, even with the haven's low-to-zero tax rates.

Tax Havens in Europe

In this article, we're diving into the top 10 European tax havens that offer favorable environments for capital gain taxes, income taxes, and corporate taxes.

  1. England: Best for capital gains

England is considered the epicenter of the rest of the world's tax haven systems. Trusts and Foundations are the standard tax haven vehicles used by foreigners to provide a protected tax-free or tax-reduced wrapper around assets. Foreign billionaires are particularly fond of the country because there are no income or capital gains taxes on investments made outside.

For non-British citizens, London is the capital of Europe's tax havens. In 2021, small and large businesses benefited from a comparatively low corporate tax of 19%.

The Cayman Islands & British Virgin Islands are two famous tax haven islands that are British dependencies. As of 2020, no overseas territory will be subject to corporate taxes or capital gains taxes.

  1. Ireland: Best for research and development startups

People who claim to be Ireland residents but are not citizens and have a residence elsewhere can benefit from its favorable tax environment. Ireland has historically offered low corporate tax rates to entice foreign businesses to transfer their business on paper rather than physically. They are profitable for research and development startups, which is called the "R&D tax credit." This provides a 25% tax credit for R&D expenses, which can be applied to a company's tax bill or even paid as a cash refund.

Ireland has a 12.5% company tax rate, and income earned by artists is exempt from taxes.

The International Financial Services Centre, a financial hub in Dublin, served as a deregulated haven for both people and businesses. In 2014, the International Financial Services Centre received $2.7 trillion in foreign investment.

  1. Jersey: Best for financial services

With a population of slightly over 100,000, Jersey is the largest of the Channel Islands and has its self-governing dependency on the UK. Jersey receives funding from the country as a mainstay in England's tax haven system.

Unlike other banking systems, the crown dependency of Jersey works under different financial transparency laws. It is infamous for its banking secrecy tactics as well as for its overall government and justice.

Companies from abroad and domestically that have a permanent presence on the island are exempt from corporate taxes. While huge business retailers and utility companies pay 20% in corporation taxes, financial companies only pay a flat 10% tax.

  1. Luxembourg: Best for foreign investors

Le Monde carried out an investigation in 2021 and found that 90% of the companies registered in Luxembourg are not Luxembourgers but from 157 different nationalities.

The Luxembourg Leaks, a financial scandal that exposed the small European country's role in helping multinational firms receive tax breaks as low as 0.25%, made headlines around the world in 2014. Amazon, IKEA, and FedEx were among the businesses mentioned in the offense.

Since many corporations' dividends are not taxed in Luxembourg, German banks are well known for taking advantage of this situation. If a majority share is 10% or not held more, long-term capital gains on stocks would be tax-exempt.

  1. The Netherlands: Best for multinational corporations

The Netherlands has the lowest taxes in Europe for business and interest and licensing income taxes.

The country became the largest beneficiary of FDI in Europe in 2019 after receiving $84 billion in FDI from outside. It looks to be the most popular tax haven for American businesses, with more than half of the Fortune 500 companies running at least one unit.

Due to its handling of international taxation, corporate headquarters and subsidiaries have exploded in the Netherlands.

Participation exemptions are a type of tax deduction used to reduce the tax burden on dividends and capital gains earned outside of the country

  1. Switzerland: Best for privacy

German law exempts foreign investors from paying interest taxes, and the country upholds the privacy of account holders. Whether it comes in the form of dividends from foreign subsidiaries or money produced in foreign branches, non-resident corporations are not required to pay taxes on their foreign income.

Germany has a good business tax system because only 5% of dividends and capital gains are subject to taxes. According to German accounting standards, these revenue sources are regarded as nondeductible operating expenses.

  1. Denmark

Due to the lack of transparency in information transfers between tax authorities and banks, tax havens operate in Denmark. In Denmark, as with limited partnerships, it can be challenging to determine the owner of a business or foundation.

In a Danish holding company, foreigners are permitted to own 100% of the shares and are exempt from corporation taxes in this situation.

Other advantages of these businesses include their simplicity of formation, lack of company activity constraints, and minimal minimum capital requirements.

  1. Germany: Best due to privacy

Foreign investors are not subject to German interest taxation, and the country upholds the secrecy of account holders. Whether it comes in the form of dividends from foreign subsidiaries or income earned in foreign branches, non-resident corporations are not required to pay taxes on their foreign income.

Germany has a favorable tax structure for companies because only 5% of dividends and capital gains are subject to taxes. According to German accounting rules, these income streams are regarded as nondeductible operating expenses.

  1. Estonia: Best due to digital nomads and solopreneurs

Every year, a flood of business owners, investors, and digital nomads arrive in Estonia.

Even though Estonia charges a 20% income tax, they only tax you on the money you choose to withdraw from your business or investment. Reinvesting your profits enables you to pay relatively little tax.

The well-known Estonian E-residency is a fantastic choice for non-EU citizens who want to establish an EU business. It's completely digital, affordable to start up, and ideal for online business owners.

This is one of the most significant places for digital nomads because they also provide two other popular visa kinds for online business owners, the Estonia Start-up Visa and the Estonia Digital Nomad Visa.

  1. Malta: Best for low business cost

Establishing an offshore company in Malta may be advantageous, and the process takes a couple of days.

Companies with headquarters in Malta are subject to a corporation tax rate of 35%, but if they have foreign shareholders, they are entitled to a refund of 30%, lowering the effective corporate tax rate to 5%.

In addition to not being needed to have an office registered in Malta, holding companies also benefit from not paying corporation tax on dividends and capital gains earned by non-resident firms, as well as from not paying stamp duties, entrance and exit fees, or exchange controls.

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