EU tax hotspots for businesses and entrepreneurs
Looking for an ideal location in Europe to relocate your business and reduce your tax bill? Here are Expat Investor’s top business jurisdictions in the EU.
When choosing a location for your new or existing business, a start-up or a new venture, there is quite a lot to take into account: you need a business friendly atmosphere, supportive tax policies, access to solid markets and skilled workforce, good infrastructure and broad range of available business services, and, maybe, even a few perks for yourself such as a great weather or entertainment and leisure.
With this in mind, Expat Investor team researched some best business destinations in Europe and put together top 3 tax- and business-friendly countries in the EU:
Cyprus is rapidly becoming one of the most attractive low-tax jurisdictions within the EU. While EU individuals can benefit greatly from Cyprus’ tax strategy, those outside of the EU recognise the country as one of the best business hubs connecting the rest of the world to the EU.
International companies and business people from all over the world are using Cyprus as a business centre to introduce their business to Europe and to benefit from its clever taxation policies and multiple DTTs.
Cyprus is a perfect opportunity to maximise your business, investment or retirement income and live a great lifestyle in a fabulous Mediterranean climate.
Doing Business in Cyprus
Cyprus is a business-friendly country and has been successfully building its reputation as an international business hub and a gateway into the EU for some years already.
IT innovators, FinTech companies, entrepreneurs, creative people, traders, etc., have been attracted to the island not just by the tax incentives, but by the ease of doing business there and by additional opportunities the country offers.
Following the rise of the expat companies and individuals, the whole host of professional services has sprung up in the country, offering businesses great expertise in different types of consulting from company formation to bank accounts to accountancy and general management.
That’s why establishing a company in Cyprus and doing business there can be advantageous for many types of different companies.
There are quite a few solid reasons why incorporating in Cyprus can be rather beneficial to entrepreneurs and business owners. Let’s look at the most evident ones:
1. As it has been already mentioned, Cyprus has one of the lowest Corporate Tax Rate of 12.5%;
2. Incorporation process is pretty simple. You only need to list one director and one shareholder who can be individuals, and come up with a unique name for your company;
3. Those who direct the company (whether individuals or entities) can be foreign and reside anywhere in the world;
4. You can file all necessary registration documents in English;
5. Thanks to very attractive taxation rules Cyprus is a great jurisdiction for all kind of companies including holding companies, controlled foreign companies (CFC), security traders;
6. It is relatively easy to open a bank account in Cyprus after forming a company. You even don’t need to be physically present there. It is possible to do everything through an eligible introducer provided that the documentation is notarised, and the necessary paperwork and identification documents are included by the directors and shareholders;
7. This jurisdiction works with International Financial Reporting Standards (IFRS) and is highly reputable.
In the attempt to boost up the economy and attract well-off international individuals and businesses, the Republic of Cyprus has been implementing a very clever taxation policy, which on the one hand gives expats and businesses opportunity to optimise their taxes, and on the other – allows the Republic to build its reputation as a transparent and well-regulated jurisdiction.
In addition, Cyprus has Double Taxation Treaties (DTTs) with over 60 countries across the world including the UK. If you are an expat resident in Cyprus, and your home country has a DTT with Cyprus, it means you will never be double-taxed on the same income. Rather you will be taxed on your certain incomes in either your country of domicile or your country of residence, depending on the DTT between the two countries.
The DTT between the Republic of Cyprus and the UK makes it extremely attractive for the British citizens to retire, set up a business and invest in Cyprus.
The policies that the government have been implementing are having a great positive impact on Cyprus’ image as an excellent destination for expats and business relocation.
The final touch was an introduction by the government in 2015 “The Non-Domicile Programme”.
The programme is specially designed for international entrepreneurs planning to move their residence to Cyprus. They are the biggest winners, and for them Cyprus Non-Dom Programme offers immense fiscal advantages.
The Non-Domicile Programme for International Private Individuals
The main goal of the Cyprus Non-Dom Programme is to let more international entrepreneurs and wealthy private individuals reside in Cyprus. This step is supposed to help revive the economic situation of the country and to secure Cyprus’ position as an international business hub.
The programme offers far-reaching benefits for entrepreneurs and wealthy individuals from abroad.
The term “resident but not domiciled”, also called Non-Dom Cyprus, was passed as a law in July 2015. Any individual relocating to Cyprus and taking up Cyprus tax residency can generally qualify as a Cyprus non-domiciled resident and stay as such for 17 years of residing in Cyprus.
To be considered non-domiciled in Cyprus, an individual must have a domicile of choice outside of Cyprus and mustn’t have been a Cyprus tax resident in the last 20 years prior to the relevant tax year.
Cyprus non-domiciled tax residents are completely exempt from Special Contribution for Defence (SDC) on dividends, interest and rental income no matter where the dividends, interest and rental income originate from and where they have been paid to.
The total tax exemption makes the holding of investments in dividends and/or interest earning financial assets, including shares and bonds, in Cyprus and anywhere in the world extremely attractive for non-Cyprus domiciled individuals.
Cyprus non-doms are also exempt from capital gains tax and are eligible for a 50% reduction in land transfer fees on properties acquired before December 31, 2016. They can also enjoy exemption from wealth, gift or inheritance taxes in Cyprus.
Those who have been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year will be considered to be “domiciled in Cyprus”, and their tax position will change.
Personal Income Tax
Personal income in Cyprus is taxed on a tiered basis with quite a substantial tax-free allowance of €19,500.
The maximum income tax rate on personal income in Cyprus is presently set at 35% for income in excess of €60,000.
In addition, there are extremely favourable tax conditions for expat retirees in Cyprus with a flat tax rate of 5% on pension income.
Business Tax Rates and Intellectual Property
There is a 2.5% tax on royalties received in connection with intellectual property rights held in Cyprus. The regular corporate tax is 12.5% on profits.
Cyprus is a perfect location for holdings. Favourable tax legislations have made Cyprus one of the best jurisdictions for holding companies.
A Cyprus holding company can take advantage of the following:
– receive dividends at low rates of withholding tax based on its double tax treaty network;
– exempt the incoming dividend from tax subject to a few simple conditions;
– distribute the dividend to its non-resident shareholders (whether or not they reside in the EU or in a country with which Cyprus has a double tax treaty) free of any withholding tax in Cyprus.
Moreover, the disposal by a Cyprus company of its underlying shareholding will not attract capital gains tax unless it’s immovable property in Cyprus. On the whole, the reorganization rules offer flexibility and significant tax planning opportunities for restructuring via Cyprus.
All in all, Cyprus offers brilliant opportunities both for businesses and individuals. Many entrepreneurs view the island as a perfect connection point between the EU and other trading blocks and countries, especially Asia, Africa and the Middle East.
Cyprus has an advanced legal, accounting and banking systems, highly skilled and multilingual workforce, excellent telecommunication systems and convenient year round flight connections.
Throw into the mix lenient and business-friendly tax policies both for businesses and individuals, a beautiful weather and beaches, – and you will get an ideal location for establishing a company in the EU.
If you are considering Malta as a destination to invest in, you are not alone in your decision. The country has already attracted a considerable number of investors with its well-educated bilingual labour force, strategic geographic position, great tax and fiscal incentives, good information and communication technologies infrastructure and professionalism in business support services.
Maltese government has demonstrated a bald and off-the-beaten-track approach to attracting entrepreneurs and businesses: Malta was the first jurisdiction to properly regulate online gaming industry. The island now is an iGaming capital of the world: the gambling industry makes up 12% of the Maltese economy, generating €700 million and employing 9,000 people.
Now Malta is trying to repeat the same success with crypto-currencies.
Already some big blockchain players, threatened by negative rhetoric from governments around the world, declared they would set up offices in Malta, as the country has promised proper regulations and crypto-friendly environment.
Besides, this fabulous Mediterranean country offers a healthy lifestyle with plenty of sunshine, where you are never too far from a beach. So, it’s obvious why Malta could be a perfect base for your business or investments.
Setting Up a Business
Setting up a business in Malta can have many benefits: Malta’s taxation policies guaranties up to 6/7 tax refunds to foreign shareholders (both residents and non-residents), full tax exemptions for holding companies and no withholding taxes or stamp duties in case of profit repatriation.
Company formation and maintenance costs are pretty low, so no wonder that the number of foreign investors setting up companies in Malta is growing every year.
Setting up a business in Malta is generally straightforward and relatively fast.
For opening a private Limited Liability Company, €1,165 of share capital deposit is required. For the public company the minimum share capital is approximately €46,600.
Both types of companies must have at least two shareholders.
Malta rivals Cyprus as one of the best low-tax destinations for entrepreneurs and businesses inside the EU. These two sweet Mediterranean islands are competing hard with each other in a bid to attract more wealthy individuals and companies to their sun-lit shores.
In such a case, you would imagine that Malta’s corporate tax would be very low. Yet, it is not!
Companies registered in Malta are considered to be resident and domiciled in Malta, thus they are subject to tax on their worldwide income at 35%.
At first glance, Malta’s corporate tax rate of 35% seems to be extortionate compared to Cyprus’ 12.5%.
However, it’s not that straightforward. Various deductions and refunds are available, and here lies the secret of Malta’s attractiveness for investors – in most cases the refunds bring investors’ total tax liability to a mere 5% or sometimes even zero.
Shareholders of a Maltese company receive dividends free of Maltese tax. Upon the receipt of dividends, the shareholders can claim a refund of all or part of the corporate tax paid by the company on the income distributed as dividends.
It is possible for a shareholder of a Maltese company to claim a 6/7ths of the tax paid by the company in respect of trading income, and 5/7ths of the tax paid by the company on interest and royalties.
The refund is reduced to 2/3rds where the distributing company claims double taxation relief.
When certain criteria are met, income of holding companies is totally exempt from tax.
Both resident and non-resident shareholders are entitled to claim tax refunds.
As an example, a Maltese company declares profits of €100,000 on which it pays €35,000 of corporation tax, and distributes the rest €65,000 as dividends. The shareholders then claim a tax refund of 6/7th of the €35,000 tax paid, which amounts to €30,000 being refunded. Total tax paid is €5,000 (5%).
Tax refunds are exempt from tax and payable within a deadline of a few weeks.
Holding Companies and Participating Exemption
Malta is fast becoming one of the best jurisdictions for forming a holding company. There is a reason why a growing number of multinational groups opt to set up their holding company in Malta – they are attracted by participating exemption which in a nutshell guarantees zero tax on dividends from such holdings and gains arising on the disposal of such holdings.
For a Maltese resident company to hold a “participating holding” in a company incorporated abroad, it must hold at least 10% of the equity shares in the non-resident company. If this condition is not met, there is a number of alternative tests to define whether the company is eligible for participating exemption.
The holding companies that satisfy all the conditions and meet all the rules can enjoy 100% income tax relief both on the dividends derived from a participating holding and on any capital gains earned on the sale of shares.
For non-domiciled residents of Malta income is taxable only to the extent that it is remitted to the country, where the top tax rate at the highest margin is 35%, while capital and overseas capital gains can be remitted tax-free. There is no minimum income level required, so if you have capital, there is a possibility to live entirely off capital tax-free.
In Malta the taxation of an individual’s income remitted into the country is progressive, the rates are from 0% to 35% depending on the income.
You can be taxed as a single person, a married couple or a parent. Depending on your category there is a tax allowance of €9,100, €12,700 and €10,500 respectively.
Above the tax allowance the rates are 15%,25% and 35%.
Conveniently for expats, Malta has neither wealth nor inheritance taxes, nor annual property taxes.
Malta has all the advantages of a Mediterranean island living combined with a well-developed business infrastructure. Malta’s tax rebate policies are surely one of its main assets, and they have already encouraged business relocation from all over Europe and beyond.
Various industries, including financial services, funds and fund managers, iGaming, Pharma and more, have invested in the country, and now global Blockchain companies are considering moving to Malta as well.
Maltese income tax policies aren’t as generous as Cyprus’, however, a lot can be done through a good tax planning (and that’s where it’s worth seeking professional help).
Ireland is an ideal entry point for businesses seeking access to the European Union and its huge and powerful market.
Businesses with operations in Ireland benefit from barrier-free access to the EU’s 28 member countries and its four freedoms – free movement of goods, capital, services, and people.
More than 1,000 multinational companies have chosen Ireland as their strategic European base.
The Emerald Isle has one of the world’s lowest nominal corporate tax rates, 12.5 percent for active businesses.
Other strong advantages of setting business in Ireland include:
– extensive double taxation agreements
– brilliant R&D tax credits. Ireland provides a 25% research and development tax credit for undertaking new and/or additional R&D activity in the country. It allows R&D intensive start-ups to claim back tax, even if they are loss-making and thus not liable to pay corporation profits tax.
– predominately young workforce, with a median population age of 35 – the lowest in the EU – and a higher percentage of post-secondary graduates than the U.S. or the U.K.
Corporate tax rates have been one of the main tools of creating a favourable enterprise environment in Ireland for more than 30 years.
The Irish tax regime is open and transparent and complies fully with OECD guidelines and EU competition law.
Ireland levies 12.5% corporate tax rate on trading income on a par with Cyprus. The government insists that it is not an incentive regime, rather it is Ireland’s standard tax rate applicable to active business or ‘trading’ income.
A tax rate of 25% applies to non-trading income (passive income) such as investment income, rental income, net profits from foreign trades, and income from certain land dealings and oil, gas and mineral exploitations.
Ireland offers a whole bunch of slack tax rules advantageous for businesses including reliefs for staff assigned from abroad, key staff working in R&D and staff carrying out work in certain countries.There is also pretty lenient foreign dividend income treatment.
Attractive Holding Company Regime
Ireland is considered to be a very attractive holding company location, as holding companies receive favourable tax treatment of dividend income. There is no withholding tax (‘WHT’) on dividends from Irish Holding Company to EU/tax treaty countries.
There is also no Capital Gains tax on disposal of qualifying shareholdings in subsidiaries.
In addition, Irish holding companies can enjoy favrable tax treatment for R&D/intangibles, tax deductions for interest on certain borrowings and lenient withholding tax regime for interest and royalty payments.
There is no doubt that Ireland is a great low-tax haven for giant multinationals. However, when it comes to individuals, Ireland is disadvantageous compared to Malta and, especially, Cyprus.
Income tax in Ireland was substantially increased after its banks collapsed and it was forced into a £57bn IMF-EU bailout.
Ireland’s 20% and 40% standard tax bands are identical to Britain, but start at a much lower level. There is also a universal social charge, which starts at 2.5% on incomes over €13,000 but rises to 8% on incomes over €70,044. That means, all in all, quite a high rate of income tax for residents.
Ireland’s residents are taxed on their world-wide income. However, non-domiciled individuals are only taxed on the foreign income or gains that they remit into Ireland.
The dividend withholding tax is applied at a standard rate of 20% for dividend payments and other distributions made by Irish companies.
The tax applies at source on the gross dividend. Irish individual shareholders pay the tax on the gross dividend at the marginal rate.
Registering a Business
It’s an easy and straightforward process to register a company in Ireland, and in many ways it’s similar to the UK registration with a few exceptions.
It is important to note that unlike the UK, Irish company law requires that:
– all companies must have at least two directors and one secretary (who can be one of the directors);
– one of the directors must be a permanent member of the EU.
If you live outside of Ireland, it’s still possible to open a company in Ireland without you being physically present in the country. There are plenty of specialist services offering the support required for non-resident Directors. They usually do all the paperwork and offer a complete solution for company set up including a registered office and a company secretary if required.
While there are plenty of advantages of setting a business in Ireland due to a very favourable business treatment (especially for big multinational corporations), Ireland isn’t as advantageous when it comes to personal income taxation as Cyprus or Malta.
The bigger your personal income is, the less you benefit from being a tax resident in Ireland. This is, probably, one of the main reasons why non-resident companies (where directors are non-Irish tax residents) are so popular – with this arrangement the company pays Irish corporate tax rates, while the directors are tax residents of a different jurisdiction and aren’t subject to Irish income tax.
Further reading: Business Opportunities in Dubai -Living and Doing Business in the UAE