If you’re looking to pay less tax on your income then, typically, a move to some sunny Caribbean island or a desert city in the Middle East might spring to mind. However, it may be possible to cut your tax bill while staying much closer to home.
Yes, across Europe – including in Ireland – a number of special schemes are in operation aimed at attracting inward workers by offering them preferential income tax regimes. And they're not all aimed at the super rich.
Some, as outlined in a new report from the EU Tax Observatory, an independent think tank, stretch as far back as the 1940s. At the end of the second World War for example, the Netherlands established a scheme that allowed new residents to exempt part of their income from taxation.
As the report notes, however, such regimes have increasingly become “better developed, increasingly aggressive and more advantageous”. Indeed back in 1994, only five such schemes (UK and Irish remittance basis schemes; Dutch, Belgian and Danish regimes) were in existence; in 2020 there were 28.
Unsurprisingly then, as schemes start to proliferate, so too do the number of people attracted to them. About 300,000 people across the European Union currently benefit from a specific tax regime.
The exception to this perhaps, is the UK remittance basis scheme. As the report notes, the number of users of this has started to fall in recent years, “likely due to Brexit”, the report says.
Ireland offers the Special Assignee Relief Programme (Sarp), which provides income tax relief for certain people who are assigned to work in Ireland from abroad and earn more than €75,000 a year. It has cost the exchequer more than €100 million since it was introduced nine years ago.
So what are your options for a lower annual tax bill?
Italy
If you’re looking for a bit of “la bella vita” then look no further than Italy, where it’s possible to avoid taxes on as much as 90 per cent of your income. The country has two main regimes aimed at attracting foreign workers.
The first is aimed at high net worth individuals. Introduced in 2017, it allows new tax residents to pay a lump sum – €100,000 a year and €25,000 per child – as tax on their foreign sources of income. Income earned in Italy meanwhile is taxed under standard conditions.
For those who derive their income from countries with very limited taxation, but who want to live in the EU, this works out as a significant tax break. Indeed according to the report, the average gain to applicants of this regime was €100,000 in 2019 when 421 people availed of the benefit.
And this is just the average; it's reported that footballer Cristiano Ronaldo benefited to the tune of several millions from the scheme during his time playing with Turin-based club Juventus.
Italy also operates another attractive regime known as “inbound workers”. It is aimed at people who move their tax residency to Italy but earn the majority of their income from activities carried out in Italy.
It was enhanced in January 2020 and now offers a reduction of 70 per cent on income tax for taxable income of up to €150,000 per year. The incentive applies for five years but may be extended – buying a home in Italy can help in this respect.
A higher tax exemption, of 90 per cent, applies in the cases of people moving to certain regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily.
The latest figures for uptake of this programme date as far back as 2006 when the average gain per applicant was €31,194.
Sweden
Similar to Italy’s inbound workers regime, Sweden’s “expert tax” offers a 25 per cent discount on earned income. This means that 25 per cent of earnings will be exempt from Swedish tax and social security charges during a five-year period – so you’ll only pay tax on three-quarters of your income.
In addition, some benefits – such as school fees, moving allowances, and allowances to travel to your home country twice a year – are tax free and exempt from Swedish social security charges.
According to the EU Tax Observatory report, almost 3,000 people availed of the incentive in 2020, with an average annual gain of €29,376 per applicant.
To qualify, you cannot be a Swedish national. The scheme lasts for five years – up from three previously.
As the name suggests, it is aimed at highly paid and highly qualified workers. Introduced in 1999, it is aimed at attracting specific and hard-to-find qualifications in Sweden – such as scientists or top-level specialists in different fields such as administration, logistics, marketing, and IT – or for those earning more than about €112,000 a year.
Spain
Another country which offers a regime aimed at highly paid professionals is Spain, through its Régimen de Impatriados.
To qualify, you must not have been resident in Spain for at least the previous 10 years, must have an employment contract with a Spanish employer and work in Spain at least 85 per cent of the working time.
If you qualify, it means you will pay a single rate of tax at 24 per cent on worldwide annual revenues below €600,000 (or 49 per cent above it), and the benefit lasts for six years.
According to the report, 9,852 people availed of it in 2020, with significant gains, of an average of €51,020 per year per beneficiary.
United Kingdom
Closer to home, the UK also offers a non-remittance regime aimed at rich taxpayers. To qualify, you have to have been non-resident of the UK for 15 out of the past 20 years.
The average benefit to an applicant is about €30,000 a year. The latest figures are for 2018, indicating that 45,700 people availed of the regime that year. As noted however, this is one of the few regimes where the numbers availing of it have fallen: back in 2016 the figure was as high as 55,100.
Portugal
It used to be even more attractive, but Portugal’s effort to attract people to set up home still has very clear benefits.
Since 2020, retirees looking to move to Portugal can cut the rate of tax due on their pension to just 10 per cent (it was previously zero) under the non-habitual residents (NHR) regime.
In an Irish context, this can result in significant savings, particularly those who may be subject to the higher rate of tax, at 40 per cent, plus the universal social charge (those aged 66 and over don’t pay PRSI).
The scheme has been the source of criticism at a local level, which is why the Government opted to increase the eligible tax rate to 10 per cent in 2020, so potential applicants should bear this in mind.
However Ricardo Reis, a tax partner with Deloitte in Portugal, doesn't expect the scheme to end any time soon. "Our view is that the main parties in the Portuguese parliament acknowledge that the NHR regime has attracted several individuals who have relevantly contributed to the Portuguese economy," he says.
Moreover, he says retirees shouldn’t fear that the regime could change during their lifetime, noting that the introduction of the 10 per cent tax “set a minimum taxation level and provide for the continuity and sustainability of the program”.
To qualify, you must not have been tax resident in Portugal in the prior five years, while you must also live in Portugal for at least 183 days a year or have a substantial interest in a property in the country.
After 10 years you will be taxed at Portugal’s marginal rates.
Unsurprisingly, given the generous benefit on offer, it has become increasingly popular, with some 23,000 people availing of it in 2020, up from about 10,000 in 2016. According to the EU Tax Observatory report, the average gain per person availing of the regime, per year, is €26,948.
It will only work for a certain type of Irish retiree however. This is because Revenue has to give you a Paye exclusion order – which means you will only be liable for income tax in the country in which you reside, which, in the case of Portugal, may be just 10 per cent – to benefit from the scheme, and it only does this for certain type of pensioners.
For example, if you’re a member of a defined benefit (DB) pension scheme, and will be drawing down an annuity in retirement, Revenue is likely to grant you a Paye exclusion order.
However, if you’re in a defined contribution (DC) scheme and are looking to put money into an approved retirement fund (ARF) for your pension, or if you have a vested PRSA, Revenue won’t issue an exclusion order. This is because it doesn’t deem drawdowns from such structures as pension payments. So, even if you move abroad, Paye will still be withheld from your deductions in Ireland.
Of course, you could just purchase an annuity rather than an ARF with your lump sum, but given interest rates, this is very unattractive for the moment.
Similarly, if you’re a recipient of a public-sector pension, you may not be able to transport this tax free either.
Portugal is not the only option for retirees looking to slash their tax bills; Malta, Cyprus, Italy and Greece all have similar regimes.
