EU non-habitual residence
|This page contains details specific to investors in the European Union (EU). However, it does not apply to residents of the EU who are also United States (US) citizens or US permanent residents.|
EU non-habitual residence describes one particular tax regime available to EU residents (and others using more onerous requirements) in specific EU countries.[note 1]
EU citizens are taxed in their tax domicile and, therefore, as a result of the non-harmonisation of tax laws across the EU, certain anomalies in terms of tax rates arise between various EU countries. For pensioners and others, this can give rise to opportunities to relocate and establish an alternative tax domicile in a more favorable location.
In addition to the text on non-habitual residence, various tax advantaged locations are listed below, including a high level overview of their tax regimes. Some of these locations are within the EU, while some are typically well known tax advantaged locations.
Non habitual residence
An example of the tax anomalies between EU nations is the Non Habitual Residence schemes that can, in certain circumstances, be availed of in countries such as Portugal and Malta. These non habitual residence schemes are outlined below.
As tax law in EU differs according to the particular jurisdiction of the tax payer, specialist advice should be obtained both within the tax payer's original domicile and within Portugal or Malta. There are legal advisers and other advisers available who are willing to provide this advice and guidance through the process.
Italy has introduced new laws to allow a non resident to avail of favourable tax rates or to receive income generated from outside of Italy.
The "new" laws allowing foreigners advantageous tax treatments can be described in brief as follows:
- Skilled worker "inpatriate" scheme
- The New "Italian Resident Non-Domiciled" tax regime to draw high net worth individuals to Italy - "Flat Tax" annual €100,000 substitute tax
- New Italian tax regime for retired people abroad - southern Italy "pensioner" tax regime for foreigners
The Italian government has issued guidelines on the new tax regimes for new residents and high net worth individuals and a checklist has also been released which individuals may file with the tax authorities in order to obtain a pre-assessment on eligibility for this beneficial regime.
Those seeking to take advantage of the new regimes should undertake detailed tax and legal planning before proceeding. While these tax regimes are not strictly non habitual residence schemes, they have some of the features of those schemes. The three different tax regimes are alternatives that cannot be applied all at once. It is up to the person to choose which one of the three is the most suitable for their situation.
Foreigners that take advantage of the southern Italy pensioner tax regime are exempted from:
- wealth taxes levied on the value of financial assets (“IVAFE”) and real estate properties (“IVIE”) held abroad;
- foreign assets reporting requirements within “Quadro RW” of the yearly Italian individual income tax return.
Portugal introduced the Non Habitual Residency programme in 2009, aimed at attracting EU residents into the country. Qualification means satisfying a residency test, and in addition demonstrating that you have not been a tax resident of Portugal in the preceding five years. To be resident under the scheme you need to spend 183 days a year in Portugal and / or own or rent on a long term basis a residence there, with the intention of making it your habitual residence.
The scheme gives those who become resident in Portugal the opportunity to benefit from a tax exemption on certain types of income for a period of 10 years, provided residency requirements are met each year. In other words 0% Portuguese tax on income sourced outside of the country (with some exceptions).
Qualifying income includes:
- royalties sourced outside of Portugal
Foreign pension income, for example from UK pension funds, is exempt from Portuguese tax provided it is taxed in another country under the terms of the tax treaty, or is not regarded as Portuguese source income under domestic legislation.
However the UK/Portugal treaty states that pension income should be taxed in the country of residence and therefore no tax will be due - in other words a double exemption.
Similarly a pension transferred to a Malta QROPS will benefit from the fact that Maltese rules allow the QROPS to be taxed in the country of residence provided a double taxation agreement exists. Therefore under the NHR 0% tax will be levied.
Investment income including:
- rental income
If the above categories are earned outside Portugal, they are exempt from tax provided it may be taxed in the state of source under a tax treaty. Or, it may be taxed under the terms of the OECD Model Tax Convention and is not regarded as arising in Portugal.
Capital appreciation would appear not to be exempt from local Portuguese tax levels which are 30%.
UK dividends, for example, will be tax-free in Portugal under the NHR regime since the UK/Portugal treaty provides that they may be taxed in the UK (even though in practice they may not actually be under the disregarded income rules).
Note that this tax-free income option does not apply to income generated in a blacklisted tax haven such as the Channel Islands.
EU nationals may either take up residence in Malta under the Malta Ordinary Residence system or benefit from The Residence Programme Rules.
Maltese tax law deems an individual non-domiciled resident in Malta on the basis of either spending more than 183 days in Malta or on circumstances demonstrated by the tax payer that support an intention to reside accordingly. (Buy or rent a home locally in accordance with certain limiting factors).
Non-domiciled residents of Malta are taxable on a remittance basis only on foreign-source income (not foreign-source capital) remitted to Malta and only to the extent remitted. Income and capital gains arising in Malta are subject to tax in Malta at the applicable personal income tax rates. 
Capital gains arising outside Malta fall outside the scope of Maltese tax, whether remitted to Malta or otherwise. Capital and savings remitted to Malta also fall outside the scope of Malta tax.
Malta has agreed over 60 double tax treaties. An individual who take up residence in Malta can receive their pensions in Malta free of tax at source, and subject to a mere 15% under the Global Residence Programme or the Retirement Programme.
Overseas capital funds invested locally are only taxed on interest or dividends generated at a 15% flat rate.
Permanent residents also benefit from double taxation agreements existing between Malta, most European countries, Canada, Australia and the USA, ensuring that tax is never paid twice upon the same income.
In addition Malta applies the following:
- No inheritance tax
- No estate duty
- No wealth tax
- No municipal taxes
- No rates
Tax advantaged locations
Below is a list of countries which offer alternative tax regimes that may be beneficial to non-citizens.
|Antigua & Barbuda||
- The term “special tax regime” with respect to an item of income or profit means any legislation, regulation or administrative practice that provides a preferential effective rate of taxation to such income or profit, including through reductions in the tax rate or the tax base. Source: Special Tax Regimes, US Treasury, May 20, 2015.
- "Listing of tax havens by the EU". Europarl. http://www.europarl.europa.eu/cmsdata/147404/7%20-%2001%20EPRS-Briefing-621872-Listing-tax-havens-by-the-EU-FINAL.PDF.
- "Malta - Habitual Residence". European Commission. https://ec.europa.eu/social/main.jsp?catId=1121&langId=en&intPageId=4702. Retrieved 05 December, 2018.
- "Residence Programme Rules". Maltese Government. http://justiceservices.gov.mt/DownloadDocument.aspx?app=lom&itemid=12219&l=1.
- "Tax Alert Malta". Deloitte. https://www2.deloitte.com/content/dam/Deloitte/mt/Documents/tax/alerts/dt_mt_tax_alert_resid_prog_rules_270814.pdf.
- The Portuguese Non-Habitual Resident (“NHR”) Tax Regime, Rödl & Partner, April 4, 2018.
- Europes Best Kept Secret, PWC
- Non habitual residence, Deloitte
- THE Portugese non habitual residence (NHR) and GOLDEN VISA (GV) programmes, Abreu & Marques & Associados
- Malta Residence, EMD Advisory Services
- ROPS, HM Revenue and Customs
- Italian non resident tax law, EY
- Article on Italian foreigner tax regimes, International Adviser
- Italian flat tax regime, PWC