European countries make it harder for their tax residents to leave and enjoy lower taxation.

Building on this trend, Member States of the European Union are increasingly enacting laws to retain taxpayer money and modify their worldwide taxation systems to accommodate "hybrid" citizenship or other tax arrangements. 

Territorial tax system: The taxpayer pays tax on onshore-sourced income, which means the money that arrives from local sources, and does not have to bear the tax burden on income coming from other countries. 

Worldwide taxation: when the taxpayer must pay taxes on both onshore and offshore income, it means that income arriving from the country of residence and from foreign countries is also subject to taxation.

Citizenship-based taxation:
When a citizen of a country must pay tax on worldwide income regardless of their tax residence, it is the most challenging form of taxation, as seen in the US and Eritrea. 

Consequently, European countries are also moving towards citizenship-based taxation. With high European taxes, several mobile taxpayers have decided to relocate - not necessarily to avoid taxes, but to move to countries with a territorial tax system and a lower or nonexistent burden.

Among these developments, France leads the way.

France adopted citizenship-based taxation for some French citizens living abroad. French taxpayers who relocate to countries with tax rates 50% lower than those in France may be subject to global income taxation. France has one of the highest tax rates in the world. It is not difficult to find a place where the tax burden is less than half that of France. This harsh punishment targets individuals who have resided in an EU Member State for at least three years over the last ten years, even if they are no longer tax residents. The new tax is referred to as the "targeted universal tax." 

Similarly, the Netherlands proposed a new exit tax (officially known as the Dutch Exit Tax) to tax citizens who leave the country, requiring them to pay income taxes (and, according to the plan, capital gains taxes as well) for 5 years after leaving. The new law will take effect in 2025. 

In addition, Spanish tax residents who relocate to a low-tax jurisdiction (also known as a tax haven) will remain Spanish tax residents for up to an additional four years. Spain treats non-cooperative countries in tax matters as tax havens - these are nations on a list issued by the EU. 

If you are seeking ways to minimise your tax liability by establishing new tax residency, our colleagues at Discus Holdings Ltd have over three decades of experience in planning legal and transparent tax structures. You can request a personalised consultation to discuss your situation here. 

 

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