Tax Havens in Europe

From Western Europe to the Caucasus, there are many tax havens in countries as diverse as Switzerland and Georgia. These countries are safe havens, free of income tax, capital gains tax and corporate tax. As such, they attract a wide variety of tax refugees, including large companies and individual investors seeking freedom from repressive tax systems in their home countries. We have therefore investigated 11 tax havens in continental Europe.

Andorra

andorra tax haven

The Principality of Andorra is located in the Pyrenees, between Spain and France; until 2015 it had no income tax, but succumbed to EU pressure (the official currency is the euro, but it is not a member of the EU). However, it remains a low-tax region, located between two countries with very high tax rates. Thanks to its tax regime, it is better suited to attract low-income earners than countries such as Monaco, which offer tax havens for the very wealthy. Andorra is considered one of the safest places in Europe and has one of the best healthcare systems in southern Europe. The cost of living in the country is comparable to Spain and considerably lower than in the UK, France and Germany.

In Andorra there is no wealth, inheritance or gift tax, only capital gains tax on the sale of Andorran real estate, which must be acquired if one wishes to establish tax residence in the Principality. Income tax rates range from 0% to 10% and apply when income exceeds EUR 40,000; there is a generous standard tax exemption of EUR 24,000. Corporate tax rates range from 2% to 10%.

There are two ways to obtain tax residency in Andorra. One is through investment and the other is through business creation. In both cases, the company must reside in Andorra for at least 90 days a year, acquire a property, hold a mortgage and be covered by Andorran health insurance. To set up a company, the applicant must submit identification documents, business references, a curriculum vitae and, if applying alone, a deposit of EUR 50 000. If you do not exercise a business activity and wish to become a passive resident, this is possible with an investment of 400,000 euros in Andorra, which may include the purchase of a property. Active and passive residence permits are valid for two years and are renewable for the first three cycles, and for 10 years from the fourth cycle onwards.

Andorran citizenship is the only means of obtaining permanent residence and is not renewable. To apply for nationality, you must have 20 years of permanent residence (active or passive) or have completed the Andorran school system and have lived in Andorra for 10 years. Of course, there should also be no criminal record. Moreover, as Andorra does not recognise dual nationality, you will have to renounce the nationality of your country of birth and of any other country of which you are a citizen. If you do not intend to become a full Andorran citizen, but only a national, it is best to renew your residence permit within the stipulated period.

Andorra: CIA World Factbook.
l
b international tax advice Andorra 2021 (Deloitte)
bAgreement on exchange of tax information in Andorra
, lbTax liability in Andorra
,
lbStarting a business in Andorra
lbPermanent residence and citizenship in Andorra

Bulgaria

bulgaria tax haven

Bulgaria has the lowest personal and corporate income tax in the EU (Andorra is not an EU Member State), with a flat rate of 10% in both countries. Gains from the sale of real estate are also subject to a 10% capital gains tax, but no tax is payable on capital gains from investments or transactions on EU stock exchanges.

There are two ways to become a resident for tax purposes in Bulgaria:

  1. Residence in Bulgaria for at least 183 days per year, or
  2. Demonstrate to the tax authorities that Bulgaria is a centre of significant interest by providing evidence of employment, place of work, social security in cash, residence permit, property ownership, family connections, etc.

A popular way for foreigners to demonstrate significant interest is through the purchase of real estate.

Foreign investors wishing to set up a company in Bulgaria can choose from a number of business entities, such as limited liability companies, limited partnerships, unlimited liability companies and joint stock companies.

There are no special requirements for foreigners to set up a company in Bulgaria, with the exception of the procedures concerning the registration of joint stock companies and share capital. The country has a low corporate tax rate, low operating costs and (if the company has employees) lower labour costs than other EU countries.

On the other hand, if an investor only wishes to form a limited company, the incorporation procedure is quick – no more than two weeks – and the minimum capital is a symbolic BGN 2 (USD 1.25).

If the investor wishes to obtain permanent residence in Bulgaria, the fastest way is investment, which only requires a visit to Bulgaria. If an investor buys a government bond worth 512,000 euros and intends to continue investing for at least five years, permanent residence is granted in six months. After five years, the investor can obtain Bulgarian citizenship or, if the investment is EUR 1,024,000, can obtain Bulgarian citizenship within one year.

Of course, it is possible to obtain permanent residence and citizenship without investment if one moves to Bulgaria on a temporary five-year visa, which is renewed annually, and resides in the country for at least half of those five years (30 months).

Those who have done both become EU residents with free education and healthcare throughout the EU, as well as tax residency in Bulgaria, but the option to invest in this citizenship has ended.

The European Commission opposes the acquisition of citizenship through investment schemes on the basis of Article 4(3) of the Treaty on European Union, as it allows non-EU residents to benefit from EU advantages without having to prove their connection to a Member State, which runs counter to the principle of trust.

Bulgaria: CIA World Factbook.
lbInternational tax highlights (Deloitte)
,lbExchange of tax and financial information in Bulgaria
, lbEstablishing taxpayer residence in Bulgaria
lbEstablishing a company in Bulgaria
, lbPermanent residence and citizenship in Bulgaria
, lbConsolidated text of the Treaty on the European Union

Czech Republic

czech republic tax haven

Charles Bridge in Prague, Czech Republic – Photo courtesy of Wikimedia Commons
The Czech Republic (CR) is worth considering as a place to set up a business with foreign participation due to its simplified taxation for individuals and legal entities; for EU nationals, a flat rate of 15% allows for deductions, especially for the self-employed, who can reduce the effective tax rate to 6-9%. It may be particularly attractive as a location for a company headquarters.

Foreigners starting a business as a sole proprietor need a minimum capital of EUR 1, while other legal entities require a higher capital, in particular a minimum of EUR 75,000 for a joint stock company.

Companies are required to submit their annual accounts to the tax office, but are only subject to an external audit if at least two of the following three criteria are met:

  1. The company’s balance sheet assets exceed EUR 1.5 million,
  2. The annual turnover exceeds EUR 3 million and
  3. The company has at least 50 employees. The company is obliged to undergo an external audit if at least two of the three criteria are met.

EU citizens can easily obtain permanent residence if they move freely in the Czech Republic and notify the Aliens Police of their presence within 30 days; after five years of residence, they can apply for permanent residence. For non-EU citizens, the procedure is a little more complicated.

A work visa must be obtained, which requires a work permit from the Czech Labour Office, but scientists, artists, students, students, sportsmen and service workers are exempt from this requirement.

Thereafter, after eight years of residence, excluding short stays, they can apply for permanent residence; to apply for permanent residence as a non-EU citizen, they must pass a Czech language test; if they have held a permanent residence permit for five years or have been resident for ten consecutive years (excluding short stays), they can apply for Czech citizenship can apply for Czech citizenship. Translated with www.DeepL.com/Translator (free version)

Since August 2017, high net worth investors once again have the opportunity to obtain a residence permit and citizenship in the Czech Republic. Investors and their family members who invest more than EUR 2.8 million in a company in the Czech Republic can obtain a long-term residence permit, valid for two years and renewable indefinitely, provided that the company creates at least 20 jobs for EU citizens in the Czech Republic. Residence permit is granted together with the right to work; after 10 years citizenship can be obtained.

República Checa: cia World Fact Book.
International tax highlights (Deloitte)
Tax information exchange agreement with the Czech Republic.
Taxpayers in the Czech Republic
Advantages of establishing a foreign business entity in the Czech Republic
Permanent residence in the Czech Republic
Acquisition of Czech citizenship
Citizenship by residence/investment in the Czech Republic

Denmark.

denmark tax haven

The highest effective marginal tax rate in Denmark is 60.4%. Anyone interested in taxes, especially the rich, would not want to live here. However, this does not mean that there are no significant advantages to setting up a holding company in Denmark.

In 2009, the Danish government passed a tax reform law allowing foreign investors to use Denmark as a jurisdiction for their portfolio companies. Danish holding companies can be 100% owned by foreign owners. The Danish private holding companies are called “Anpartselskab”, abbreviated as ApS.

These companies help foreign private investors to invest and trade, essentially tax-free, in a globally diversified portfolio of shares as a company outside their tax territory.

In other words, Denmark allows the creation of tax-free holding companies that can generate income from various sources and transfer it to other companies in different countries. Under certain conditions, foreign investors are not taxed on the income of the companies in which they invest, making them an excellent platform for tax-free investment in securities and derivatives.

Thus, the advantages of Danish holdings structured on a portfolio basis are as follows:

  1. Foreigners may hold all shares;
  2. There is no corporate tax on foreign shares and no tax on foreign capital gains, interest and dividends – except in the US, where there is no corporate tax. Taxpayers are required to report their worldwide income to the tax authorities;
  3. There are no restrictions on the business activities of companies in which the holding company holds shares;
  4. Danish holding companies can be registered within one working day by submitting several documents to the Danish Companies Agency and are assigned a company registration number (CVR);
  5. So-called “CVRs” can be purchased to speed up registration. offshore company (not a shelf company, but a reserve company).
  6. The Danish government does not require a specific accounting system to control the financial activities of the holding company, but the accounts must be audited annually as part of the public accounts;
  7. An annual general meeting is required, but can be held anywhere in the world;
  8. The directors and managers of a private holding company need not be Danish and can be located anywhere in the world.
  9. The appointment of directors is permitted.

What don’t you like?

Denmark: CIA World Factbook.
International tax highlights
Exchange of information on financial accounting in Denmark
Advantages of incorporating a Danish holding company
There are no tax advantages for Danish residence or citizenship.

Republic of Georgia.

republic of georgia tax haven

The Republic of Georgia is located in the Caucasus region, between Asia and Europe, on the eastern edge of the Black Sea. As the only European country with a territorial tax system, i.e. a tax system that excludes foreign income from taxation, persons with tax residence in Georgia are not taxed on sufficient foreign income.

For those living in countries that do not tax foreign income, it is very easy to avoid paying income tax if you are resident for tax purposes in Georgia, especially if you are not resident in Georgia. Wealthy individuals can also become Georgian tax residents even if they have never lived in Georgia. On the other hand, Georgia can be chosen as a base of operations because it is very cheap, safe and has few excessive financial regulations.

Of course, if you are a US citizen (both domestic and foreign), you are out of luck in all respects. This is because the US taxes income regardless of where you earn it or where you live, and Georgia is committed to achieving full tax transparency with foreign countries by 2023.

The tax system of the Republic of Georgia is favourable for both individuals and companies. Specifically, the income tax is 1% for individuals earning up to 500,000 Georgian Lari (GEL), or approximately USD 145,000 per year, and 0% for individuals earning income or reselling cryptocurrencies outside Georgia.

Corporate tax is 15% and only applies to dividends paid to shareholders and credited to the company’s bank account, not if they are reinvested. Georgian legal entities are not subject to income tax on foreign subsidiaries, unless they are registered in a tax haven. There is also an income tax exemption for IT companies providing services outside Georgia and for “free industrial zones” offering tax exemption within Georgia. Georgian banking services are also world class.

Georgia residency can be obtained in four ways.

  1. Temporary residence for real estate investment;
  2. Permanent residence by investment;
  3. Special tax residence for high net worth individuals (HNWI); and
  4. Visit and stay in Georgia for more than 183 days, file a Georgia tax return and apply for a Georgia tax certificate (thus obtaining tax residency).

If you purchase property in Georgia worth more than $100,000, you can obtain a residence permit for you and your family for an additional fee.

This temporary residence card is valid for one year and can be renewed. For permanent residence, if you invest more than USD 300,000 in real estate in Georgia, you can obtain a five-year investor visa if you keep the property during this period or replace it with another of equal value; after five years you can apply for permanent residence and if you stay more than 10 years you can apply for naturalisation, but this procedure is more complicated.

If you are a wealthy individual and can prove that you earn more than GEL 25,000 (USD 725,000) per year in Georgia, have assets of more than GEL 3 million (USD 870,000) worldwide or earn more than GEL 200,000 (USD 58,000) per year, you can obtain a special tax residence certificate as a wealthy taxpayer.

As you can see, Georgia’s criteria for the wealthy are not beyond the reach of many middle-class Americans or Europeans. The problem is that, if you qualify, you must spend at least three weeks a year in Georgia to obtain a tax certificate, which is only valid for one year. This must be done annually if you want to maintain your tax status.

Establishing a sole proprietorship in Georgia is the route chosen by many private investors. The procedure is very simple: it is granted Georgian legal personality and pays only 1% income tax in Georgia up to 500,000 herrings (145,000 USD) and 3% income tax above that amount. Income earned outside Georgia is not taxed. Republic of Georgia: CIA World Factbook
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International tax framework (Deloitte)
Georgia commits to introduce international standards for the exchange of financial information by 2023
Taxpayers in the Republic of Georgia
Acquisition of Georgian nationality

Island of Jersey (Channel Islands)

jersey island tax haven

As one of the Channel Islands, Jersey is a self-governing territory of the United Kingdom and has long been known as a tax haven, although its tax haven status has diminished with the signing of more than 30 double tax treaties under pressure from the OECD, especially for companies establishing tax residency within its jurisdiction. There are still advantages.

As far as personal income tax is concerned, Jersey’s tax rates are virtually non-existent. The island of Jersey imposes a 20 per cent tax on wealthy people moving in and, from 2021, prospective high-net-worth residents must contribute more than £145,000 (US$201,000) a year to the island and meet a minimum annual income of £725,000 (US$1 million). If the income exceeds the minimum, an additional tax of 1% is applied.

In addition, island residents are subject to a 5% goods and services tax, a 10.5% stamp duty on the sale of land and property in the jurisdiction and property tax in individual parishes. The latter tax also applies to companies, of course. For individuals, the only advantage of residing in Jersey is that there is no capital gains tax and no tax on capital transfers to or from the island.

In terms of corporate tax, all taxes on companies operating in Jersey were abolished in 2008, with the exception of financial services companies, which are taxed at 10 per cent of profits, and utilities, leasing and development companies, which are taxed at 20 per cent.

Therefore, although the island of Jersey remains a good location for the establishment of foreign companies, it is beginning to struggle with dormant shell companies that act as places to hold assets without any substantial business activity, and is beginning to demand that these companies actually carry out their activities.

There are two types of foreign companies on the island of Jersey. The first type is a company which is foreign owned but managed and controlled in Jersey by a local director or board of directors. These companies are deemed to be resident in Jersey and are subject to local tax on their income depending on the type of business.

The second category is that of companies owned and controlled by foreign owners, who operate their business through a permanent Jersey resident. The latter companies are taxed, according to their business classification, only on the income of their Jersey associates.

Jersey: CIA World Factbook.
International tax highlights (Deloitte).
Jersey Tax Information Exchange Agreement.
Jersey Income Tax Law (revised 2019).
How to determine who is liable to pay tax in Jersey.
Jersey residency and naturalisation by investment.
Transfer to Jersey.
Taxation of foreign companies in Jersey.
Jersey ceases to be a safe haven for non-operational shell companies

Liechtenstein

liechtenstein tax haven

In its more than three centuries of history, the landlocked country of Liechtenstein has become a relatively modern development. On the verge of bankruptcy after World War I, Liechtenstein signed a customs and monetary agreement with Switzerland in 1924 and embarked on the road to a modern economy based on industry and services.

One of its trump cards was the “low tax rate”: in 1955, it was said to be a country where citizens could live almost tax-free (the highest tax rate at the time was 1.4%) and foreign companies enjoyed only the lowest rate; in the 1960s, the ruling family was forced to sell its collection of classic books at a high price.

Despite financial difficulties, a free enterprise economy flourished in the 1970s, and industry and finance boomed; on its 300th anniversary in 2019, Liechtenstein will be the richest country in the world per capita. It has the lowest tax rate in continental Europe, at 12.5%, and its very flexible and inexpensive company formation laws have led to the creation of many holding companies.

More recently, especially since the 2008 tax scandal (see section 4.5), the Principality has come under international pressure for the lack of transparency of its banking and tax systems. For example, until 2009, it distinguished very well between tax evasion and tax fraud and refused to provide any data to foreign governments, except in cases of obvious tax fraud. Despite the scandalous crackdown and Liechtenstein’s partial withdrawal from OECD rules, it remains a useful tax haven.

Liechtenstein’s top tax rate is 8 per cent for those with income above CHF 200,000 (USD 219,000). However, some local authorities in Liechtenstein levy taxes in addition to the national tax, so the effective tax rate is higher, with a lower limit of 2.5% and an upper limit of 22.4% for each national tax bracket.

In addition, there is a 7.7% value added tax on many goods and services, a 3-4% capital gains tax on real estate, a 4% property tax on the fair market value of real estate, and a charitable gift tax that can reduce the property tax that would otherwise be paid.

On the positive side, Liechtenstein has no inheritance, inheritance or gift tax, and capital gains from the sale of shares in domestic or foreign companies are not taxed. In general, there is no better place than Liechtenstein for people who wish to establish their tax residence and who want to benefit from tax advantages.

In addition, the 89 residency places available each year are very competitive. If an investor visa is desired, the cost is at least USD 110,000, which requires the creation of new jobs for Liechtenstein residents. A temporary residence permit can be converted into permanent residence after five years, and after 30 years of residence citizenship can be applied for.

From the company’s point of view, it makes most sense to establish a holding company in Liechtenstein to act as an “umbrella” for other companies. There are four types of holding companies: operational, executive, financial and organisational. Only the first type (operating company) allows business activities in Liechtenstein and is the preferred type of holding company for large companies wishing to benefit from the tax advantages of setting up in Liechtenstein.

The sole function of a management holding company is to own the shares or assets of its subsidiaries and manage their cash flows. Financial or organisational holdings are less frequent. A financial holding company is a Liechtenstein-based company that has no external activities and merely holds its assets, and organisational holding companies are companies that exist solely to create or acquire other companies.

These holding companies can take the form of a foundation, a trust or a company, but only the latter can operate and require an initial capital of at least CHF 30,000 (USD 33,000). Holding companies of all types benefit from tax advantages such as capital gains tax, dividend exemption and special tax credits for owning intellectual property.

If any tax is payable at the place of residence, the corporate tax rate is a flat rate of 12.5%. The procedure for incorporating a holding company in Liechtenstein is relatively quick and efficient, but if you are in a hurry, there are a number of shelf companies, usually with limited liability, which are already registered and can be acquired immediately.

Liechtenstein: el CIA World Factbook.
International tax highlights: Liechtenstein 2021 (Deloitte)
Liechtenstein tax scandals in 2008
Implementation of a tax information exchange agreement in Liechtenstein
Personal income tax in Liechtenstein
Residence and citizenship in Liechtenstein
Establishment of an offshore company in Liechtenstein
Holding companies in Liechtenstein
Acquisition of (non-exempt) companies in Liechtenstein

Luxembourg

luxembourg tax haven

The Grand Duchy of Luxembourg is a landlocked country in Western Europe, bordered by Belgium, France and Germany. It has a reputation for having a very favourable tax environment, especially for large companies. In particular, German banks benefit from the fact that dividends from many companies are tax exempt, while private and institutional investors benefit from the fact that long-term capital gains are also tax exempt if the shareholder’s stake is less than 10%. Luxembourg also has a large number of paper and holding companies, which minimise the taxation of the companies controlling these paper companies.

The published top tax rate for companies operating in Luxembourg is 24.94%, with a basic corporate tax rate of 17%, plus a municipal business tax of 6.75% and an employment fund contribution of 1.19%, according to a closed Luxembourg tax deal uncovered by investigative journalists in 2014. In practice, hundreds of multinational companies would have been taxed below 1%.

For example, according to the Luxembourg Leaks documents, FedEx has two offices in Luxembourg and remits income from Mexico, France and Brazil to its Hong Kong office, and Luxembourg has signed a private agreement to tax this income at 0.25%, with 99.75% of the funds remitted % found not to have been taxed at all.

More than 340 companies worldwide, including Amazon, Apple, AIG, FedEx, Fidelity, Heinz, IKEA, Office Depot, PepsiCo and Staples, have established subsidiaries in Luxembourg and have signed special agreements offering significant tax advantages.

In this context, it is perhaps not surprising that Luxembourg attracts foreign direct investment of a similar size (about $4 trillion, or about $6.6 million per capita), despite having a population less than one-fifth that of the United States.

Luxembourg resident companies are (allegedly) taxed on their worldwide income, while non-Luxembourg resident companies are only taxed on the local income of their jurisdiction. If no income is earned in Luxembourg (which is typical of many shell/holding companies), no tax is payable.

For individuals, residence in Luxembourg has few tax advantages, but as in other countries such as Denmark and Liechtenstein, setting up a wholly owned holding company can offer significant advantages and form part of an excellent tax saving strategy.

Luxemburgo: CIA World Factbook.
International tax highlights (Deloitte)
Exchange of information on financial accounting in Luxembourg
Tax system in Luxembourg
Corporate taxation in Luxembourg
Confidential tax operations of global companies in Luxembourg
Leakage database in Luxembourg
Creation of an offshore company in Luxembourg
The rise of phantom investments and the example of Luxembourg
Luxembourg defends itself against accusations of being a tax haven (as if that’s a bad thing!) …

Malta.

malta tax haven

Malta is an island country in southern Europe located in the Mediterranean Sea, south of Sicily. The Maltese tax system provides tax information on special request and, although there is no automatic exchange of information on financial accounts, it is in principle possible to obtain information on all accounts held in Malta.

Obtaining tax residency in Malta is not very attractive and the only advantage of Maltese nationality that can be obtained through investment is that Malta is a full member of the European Union and has the privileges that come with EU citizenship.

Unfortunately, the latter advantage is likely to be lost soon, as the European Commission has initiated legal action against Malta, which allows non-EU residents to acquire EU citizenship through the naturalisation by investment regime. Once the prospect of easily obtaining EU citizenship is eliminated, Maltese residency status brings foreigners.

The only advantage is the flat rate of 15% on most sources of income for those with some form of Maltese residence status. However, for Maltese citizens, income earned in Malta is taxed at a maximum rate of 35%.

However, offshore company incorporation in Malta is still cost-effective and can be set up in as little as two days. Companies incorporated in Malta are subject to corporate tax at 35%, although a 30% discount is applied if the company is owned by foreign shareholders, resulting in an effective corporate tax rate of 5% for foreign companies.

Holding companies enjoy a number of advantages, such as not having to have a registered office in Malta, not having to pay corporation tax on dividends or capital gains earned by non-residents, not having to pay stamp duty or deposit/withdrawal fees, and not having exchange controls.

However, all companies are required to disclose their capital, shareholders, directors and registered office (where required), and even non-resident companies are required to file annual accounts audited by a resident auditor. The company’s annual accounts are filed with the commercial register office (for a fee of between 100 and 900 euros, depending on the share capital). Tax returns must also be submitted to the Malta Revenue Authority.

Malta: CIA World Fact Book.
International tax highlights: Malta 2021 (Deloitte).
Tax information exchange agreement with Malta
Advantages of tax residence in Malta
Offshore companies in Malta
Holding companies in Malta
Acquisition of Maltese nationality by investment
European Commission initiates proceedings for abuse of credit in Malta’s citizenship investment scheme

Montenegro.

montenegro tax haven

Montenegro is located in southeastern Europe, between the Adriatic Sea and Serbia. The name Montenegro derives from the name of a mountainous region in the Serbian province of Zeta.

It was part of larger political entities, such as Yugoslavia and Serbia, but resolved to become independent in 2006 and is seeking a transition to a capitalist economy and political ties with Western Europe; it applied for EU membership in 2008 and is now expected to complete the accession process by 2025, in 2017.

The country became a member of NATO. It also signed the Convention on Mutual Administrative Support in Tax Matters in 2019 and adopted the OECD’s Common Reporting Standard (CRS).

It has one of the most attractive tax regimes among EU countries. It has the most liberal economy in the Balkans, with the highest personal income tax rate (11%), corporate income tax (9%) and capital gains tax (9%). Montenegro has a citizenship by investment system, which is due to disappear by the end of this year due to its desire to join the EU, which opposes such a system (see the problems with Bulgaria and Malta above).

Instead, Montenegro is working out the details of a new system that will attract highly qualified people and offer a pathway to EU-linked citizenship, at least for the time being. Please stay tuned.

In the meantime, all companies registered in Montenegro, whether local or foreign, will be subject to the same taxes, and legal entities will be taxed at a flat rate of 9%.

Montenegro does not have a holding company system, so there are no real tax advantages for establishing a holding company in a Montenegrin jurisdiction. The main advantage of setting up a company in Montenegro is that it has one of the lowest flat tax rates in Europe.

Montenegro: CIA World Factbook.
Accession of Montenegro to the OECD Agreement on International Tax Information
Convention on Mutual Administrative Assistance in Tax Matters (OECD)
Advantages of tax residency in Montenegro (slightly outdated information)
Establishment of an offshore company in Montenegro
Montenegro’s investment naturalisation scheme is only valid until the end of 2021.

Switzerland.

switzerland tax haven

Switzerland’s financial reputation and mystique will be discussed in more detail in another article, but some of the highlights are briefly outlined here. Located in Central Europe, Switzerland has historically been very independent from its neighbours: although it is not an EU member state, it has signed at least 120 bilateral agreements with EU countries and several provisions of EU law allow it to participate in the EU single market. However, since the UK’s exit from the EU, anti-European sentiment has intensified in Switzerland, especially with regard to the free movement of foreign workers to Switzerland and the employment of Swiss workers.

Switzerland’s passion for independence has also historically made it an ideal place for private bank accounts and sensitive financial transactions: following the banking scandal of 1932, Switzerland enacted legislation in 1934 making it a criminal offence to disclose information about a client or the identity of an account holder. The greatest privacy was maintained in numbered accounts, which were identified by number rather than by account holder and were known only to a few bank employees.

Unfortunately, Swiss banks have agreed to share account information with US persons under the US FATCA law, under threat of prosecution by the IRS and severe US sanctions. Assets may be held by entities in non-US jurisdictions, for example, a Swiss trust or limited liability company, which would require special fees and court decisions in that foreign jurisdiction before disclosure. Thus, residents of countries subject to unjustified asset seizures or other unfair asset holding regimes may benefit from creditor protection through their Swiss bank accounts.

When setting up an offshore company in Switzerland, Switzerland requires that the registered office of the company be located in the Swiss jurisdiction and that legal proceedings be decided in Switzerland. Non-residents must engage a Swiss company specialised in setting up such companies. These companies, under Swiss law, have Swiss citizens as directors, partners and secretaries. If this service is required, it can be arranged so that the foreign owner of the company does not appear on the company’s documents. In these circumstances, it is not possible to disclose the true shareholders unless there are specific allegations of credible and actual criminal activity, such as drug trafficking, arms trafficking or sexual activity. The company performing this service will enter into a declaration of trust with the shareholder, guaranteeing that it will only carry out work commissioned by the actual shareholder. The agreement must also contain an email address for receiving instructions from the effective shareholder, and all communications must take place on an encrypted account.

There are four types of offshore legal entities in Switzerland: joint stock companies (AGs), limited liability companies (GmbHs), trusts and foundations AGs combine the advantages of a corporate structure with the flexibility of a partnership and offer tax advantages to all shareholders. A limited liability company is essentially a company with limited liability for the protection of its shareholders; AGs and GmbHs can be holding companies. A trust transfers assets and their management to a trustee as legal owner with fiduciary responsibility to the trust beneficiaries. Finally, a trust is similar to a trust, but has the advantage that it functions as a company and provides a common vehicle for the exercise of shareholder rights, asset management, inheritance and estate planning. Offshore companies in Switzerland are restricted because the law prohibits banking, insurance, reinsurance, fund management, collective investment schemes and other activities involving a connection to the banking or financial industry.

Una sociedad de cartera suiza es una AG o GmbH cuyo objetivo principal es poseer y controlar acciones de otras empresas. Swiss tax law does not allow a holding company to carry on any other activity in Switzerland. Holding company status in Switzerland is subject to three further conditions. (1) Realised investments and income from participation in other companies must represent two-thirds of the total assets and income of the company; (2) To be a holding company, at least one participating company must own at least 10% of the total number of participating shares or the total value of the shares must exceed CHF 1 million (USD 1.1 million); (3) The investment must have a minimum holding period of at least one year.

For tax purposes, the standard rate of value added tax (VAT) on Swiss company profits is 8%, but varies according to the tax situation in each canton. In addition, VAT rates have been reduced for hotels (3.8%) and basic foodstuffs (2.5%). All company accounts must be kept and submitted to the competent authorities, and some types of companies are subject to audit.

Although the security of Swiss bank accounts is generally good, there are other European jurisdictions that offer more tax advantages for setting up an offshore holding company.

Even if you have a high annual income and do not need to work in Switzerland, it is essential to obtain a Swiss residence permit if you wish to work or run a business in Switzerland, as you will benefit from a lower income tax due to the flat tax reduction. The flat-rate tax is a simplified assessment procedure for foreigners who reside in Switzerland but are not gainfully employed. The tax is calculated on the basis of the gross annual living expenses of the taxpayer and his dependants in Switzerland and abroad. To obtain Swiss citizenship, the taxpayer must have been resident in Switzerland for 10 years, but the process can be accelerated by setting up a company or paying a flat tax on investments in the Swiss economy (neither is cheap).

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