Extending from western Europe into the Caucasus, countries as diverse as Switzerland and the Republic of Georgia host a variety of tax havens. These countries provide a refuge from income taxes, capital gains taxes, and corporate taxes. In consequence, they have attracted a variety of tax refugees, including large companies and private investors, seeking to mitigate the oppressive tax regimes in their home nations. We examine eleven such tax havens across the European continent.
[NOTE: This article is a chapter in our
Comprehensive Guide to Tax Havens.]
Table of Contents
The Principality of Andorra is sequestered in the Pyrénées between Spain and France. It did not have an income tax prior to 2015, but succumbed to pressure from the European Union (of which it is not a member, though the Euro is its official currency). It nonetheless remains a low-tax region sandwiched between two countries with very high tax rates. Its tax policies put it in a better position to attract those of more moderate means than countries like Monaco, which provide a tax refuge for the very wealthy. Andorra is ranked as one of the safest places in Europe and has one of the best health care systems in Southern Europe. Its cost-of-living is on a par with Spain and considerably lower than that of Britain, France, or Germany.
Andorra has no wealth tax, no inheritance tax, no gift tax, and only charges capital gains tax on the sale of Andorran real estate, purchase of which will be necessary if you wish to establish tax residency in the principality. It’s income tax rates vary from 0% t0 10% and take effect once income exceeds €40,000. There is a generous standard exemption of €24,000. Corporate tax rates vary from 2% to 10%.
There are two ways to qualify for tax residency in Andorra. One is to make an investment and the other is to start a company. Both require a person to reside in Andorra a minimum of 90 days each year and to purchase property, maintain a bond, and acquire Andorran health insurance. If you wish to start a company, you will need to have your identification papers, business references, and resumé in order and, for a single applicant, post a €50,000 bond. If you would rather be a passive resident than run a business, you can do so by investing €400,000 in Andorra, which can include the purchase of real estate. Active and passive residency permits are issued for 2 years for the first three renewable cycles, then 10 years for the fourth cycle onward.
Citizenship in Andorra is the only way to establish a permanent residency that does not require renewal. To apply for citizenship, you must either have been a resident (active or passive) for 20 years, or have completed your education in Andorra’s school system and lived there for 10 years. Of course, you also must not have a criminal record anywhere. Beyond this, you will have to renounce your citizenship in your birth country and any other country in which you happen to hold citizenship, because Andorra does not permit dual citizenship. Unless you are completely committed to being an Andorran citizen, and only an Andorran citizen, it would seem best just to renew your residency on the required schedule.
- Andorra: The CIA World Factbook
- International Tax Highglights: Andorra 2021 (Deloitte)
- Andorra’s Tax Information Exchange Agreements
- Tax Residency in Andorra
- Setting Up a Business in Andorra
- Permanent Residency and Citizenship in Andorra
Bulgaria has the lowest personal and corporate tax rates within the European Union (Andorra isn’t a member), both of which are a flat rate of 10%. While you will also pay a 10% capital gains tax on profits from the sale of property, there is no capital gains tax on your profits if you have investments or trade the stock market in the EU.
You can become a tax resident of Bulgaria in one of two ways: (1) live there at least 183 days each year; or (2) demonstrate to the tax office that Bulgaria is your vital center of interest by presenting evidence in relation to the location of your employment or business, your monetary social contributions, residence permits, property ownership, and family relationships. The favored way for foreigners to establish proof of vital interest is through the purchase of real estate.
Foreign investors who wish to start a company in Bulgaria can choose among a variety of business entities: sole proprietor LLCs, LLCs, joint stock companies, limited partnerships, and general partnerships. Aside from the registration process and share capitalization for joint stock companies, there are no special requirements for foreigners establishing a company in Bulgaria. The country has low corporate tax rates, low operational costs, and (if the company has employees) lower labor costs than in other EU countries. If the investor just wants to open a private LLC, on the other hand, there is a quick registration process that takes less than two weeks and a symbolic minumum required capitalization of 2 BGN ($1.25 US).
If you want to establish permanent residency in Bulgaria, the fastest path is through investment and it only involves a single visit to Bulgaria. If an investor purchases government bonds worth €512,000 with the intent to maintain the investment for at least 5 years, permanent residency is granted in 6 months. It can be upgraded to Bulgarian citizenship after 5 years or, if €1,024,000 is invested, Bulgarian citizenship can be granted in one year. Of course, permanent residency and citizenship can be achieved without investment by moving to Bulgaria on a temporary visa that is renewed annually for a period of five years, and living in the country for at least half of those five years (30 months).
A person doing either of these things not only gets Bulgarian tax residency, but also becomes a resident of the EU with access to free education and medical care throughout the European Union, though this is coming to an end for the investment route to citizenship. The European Commission, in accordance with article 4(3) of the Treaty on the European Union, opposes citizenship by investment programs because they give non-EU residents access to EU benefits without proven links to any of the member countries, something they regard as contrary to the principles of trust-based cooperation.
- Bulgaria: The CIA World Factbook
- International Tax Highlights: Bulgaria 2021 (Deloitte)
- Exchange of Tax and Financial Information in Bulgaria
- Establishing Tax Residency in Bulgaria
- Opening a Company in Bulgaria
- Permanent Residency and Citizenship in Bulgaria
- Consolidated Version of the Treaty of the European Union
Czechia (Czech Republic)
Czechia (the Czech Republic) has simplified both personal and corporate taxes and is worth considering as a place to establish a foreign-owned business. Citizens of the EU may find it especially attractive as a place to establish residency because the 15% flat tax rate allows for deductions that, especially for business owners, can reduce the effective rate to 6-9% for self-employed entrepreneurs.
A sole proprietor LLC can be established by a foreigner in the country for €1; other corporate entities require more capital, especially joint stock companies, which need at least €75.000. Financial statements for businesses must be filed with the tax authority every year, but an external audit is only required when at least two of the following three criteria are met: (1) the balance sheet of the company shows assets over €1.5 million; (2) there is an annual revenue turnover that exceeds €3 million; or (3) the company has over 50 employees.
Permanent residency in Czechia is easily acquired by EU citizens who may relocate there freely and report their presence to the foreign police within 30 days. After residing in the country for 5 years, they are entitled to apply for permanent residency. For non-EU citizens, the process is a bit more involved. A work visa will have to be obtained that requires an employement permit from a Czech employment office, although academics, artists, students, athletes, and service industry workers are exempted from this requirement. If you then live in the country for eight years, except for short-term vacations, you are eligible to apply for permanent residency. Applying for permanent residency as a non-EU citizen will require you to pass a Czech language exam. If you’ve held a permanent residency permit for 5 years, or have lived in the country uninterrupted (except for short vacations) for 10 years, you may then apply for Czech citizenship.
Wealthy investors have another path to residency and citizenship in Czechia as of August 2017. A long term residence permit for an investor and his or her family, which is good for two years and renewable indefinitely, is obtainable without compulsory residence requirements for an investment in a business in the Czech Republic in the amount of at least €2.8 million when that business creates at least 20 jobs in the country for EU citizens. Granting of residency carries with it the right to work. Citizenship may be applied for after 10 years.
- Czech Republic: The CIA World Factbook
- International Tax Highlights: Czech Republic 2021 (Deloitte)
- Tax Information Exchange Agreements with the Czech Republic
- Tax Residency in the Czech Republic
- Benefits of Setting Up a Foreign-Owned Business Entity in the Czech Republic
- Permanent Residency in the Czech Republic
- Acquiring Czech Citizenship
- Czech Residency/Citizenship by Investment
Denmark’s top marginal effective income tax rate is 60.4%. If taxation is your concern, then you don’t want to live there, especially if you are wealthy. But this doesn’t mean that there aren’t considerable advantages available to those who establish a holding company in Denmark.
In 2009, the Danish government passed the Danish Tax Reform Act that allowed foreign investors to use Denmark as a holding company jurisdiction. A Denmark Holding Company can be completely foreign-owned. A Danish Private Holding Company is called an “Anpartselskab,” which is abbreviated ApS. Such companies help foreign private investors to hold a globally diverse portfolio of corporate shares for investment and trading, essentially tax free, under a corporate identity outside the tax jurisdiction of their home nation. In short, Denmark allows the registration of tax-free holding companies that can receive income from multiple sources and pass them on to other corporations in different countries. They provide an excellent investment platform for tax-free investments in securities and their derivatives because foreign investors are not taxed on income from investment companies as long as certain conditions are met.
Here, then, are the advantages to having a Danish Holding Company structured around an investment portfolio: (1) Foreigners can own all of the shares of the company; (2) No corporate tax is imposed on foreign shares, nor is there any tax on capital gains, interest, or dividends for foreigners–though U.S. taxpayers are expected to report all global income to the IRS; (3) The business activities of the companies in which the holding company owns shares are not restricted in any way; (4) A Danish Holding Company can be registered in one business day by filing a few documents with the Commerce and Companies Agency of the Danish Government, which will then assign a registration (CVR) number to the company; (5) Shelf companies (not shell companies, though a shelf company may be a shell company) can be purchased for even faster registration; (6) The minimum share capital for an ApS is very low–approximately €10,700–though the ApS is not allowed to own shares in itself; (7) Only one shareholder is required and this same person can be the sole director of the holding company; (8) The Danish government does not require any specific accounting system to be used to track the financial activities of the holding company, though accounts must be audited annually as part of records accessible to the public; (9) Annual general meetings of shareholders are required, but can be held anywhere in the world; (10) The director(s) and manager(s) of a private holding company are not required to be from Denmark and can be located anywhere in the world; and (11) Nominee directors are permitted.
What’s not to like about that?
- Denmark: The CIA World Factbook
- International Tax Highlights: Denmark 2021 (Deloitte)
- Exchange of Financial Account Information in Denmark
- Advantages of Establishing a Danish Holding Company
- There Are NO Tax Advantages to Danish Residency or Citizenship
Republic of Georgia
The Republic of Georgia is located in the Caucasus between Asia and Europe on the eastern edge of the Black Sea. As the only European country with a mostly territorial tax system, that is, a tax system that excludes foreign-earned income from its tax base, properly structured foreign-sourced income is not taxed for anyone with Georgian tax residency. For anyone who lives in a country that doesn’t tax foreign income, especially if you aren’t living in your home country, it is a fairly straightforward matter to pay no tax on profits if you have a tax residency in Georgia. If you are a person of means, it’s also possible to become a tax resident of Georgia without ever living there. On the other hand, the cost of living in Georgia is low, it’s a very safe country, and there aren’t a lot of financial regulations that make life difficult, so it can be a good choice for a home base. Of course, if you are a U.S. person (citizen or foreign national), you’re out of luck across the board, because the U.S. taxes your income no matter where it’s earned and no matter where you live, and Georgia has committed to complete tax transparency with foreign nations by 2023.
The tax system in the Republic of Georgia works favorably for individuals and for corporations. In particular, income tax is 1% for individuals with an annual income up to 500,000 Georgian Lari (GEL), which is about $145,000 U.S., with 0% personal income tax on income from outside of Georgia or from the resale of cryptocurrencies. Corporate income tax of 15% is only payable after dividends have been paid to shareholders and the money is in the company’s bank account; if the money is reinvested, no tax is due. Georgian legal entities are not taxed on profits made from foreign subsidiaries unless those subsidiaries are registered in tax havens. There are also income tax exemptions for information technology companies providing services outside of Georgia and “free industrial zones” offering tax exemptions within Georgia. The banking services in Georgia are also world-class.
Residency in Georgia can be obtained in four ways: (1) temporary residency through real estate investment; (2) permanent residency by investment; (3) special tax residency for high net worth individuals (HNWI); and (4) visiting and staying in the country for more than 183 days, filing taxes in Georgia, then applying for a tax certificate there (thus gaining tax residency).
If you buy real estate in Georgia worth at least $100,000, for additional fees, you can get a residency permit for yourself and the members of your family. This temporary residency card is good for one year, but it is renewable. In the case of permanent residency, if you invest at least $300,000 in Georgian real estate, you are entitled to a 5-year investor’s visa as long as you keep the real estate for this period or replace it with real estate of similar value. After 5 years, you are entitled to permanent residency, and if you stay for 10 years, you can apply for citizenship, though this is a more complicated process.
If you are a HNWI and can prove you have at least GEL25,000 ($7,250 U.S.) of annual income from Georgia, then you qualify for special tax residency as a wealthy person if you can either prove that you have at least GEL3,000,000 ($870,000 U.S.) in assets worldwide, or you earn at least GEL200,000 ($58,000 U.S.) each year. As you can see, Georgian standards for HNWIs are not out of reach for many middle-class Americans. The difficulty is that, if you meet the criteria, you must spend at least 3 weeks in Georgia per year for a tax certificate that’s only good for one year. If you want to maintain your tax status, you have to do this every year.
Forming a sole proprietorship in Georgia is the route that many individual investors take. It’s relatively easy to do through services that are available for this purpose, and it gives you a corporate identity in Georgia that is only taxed at 1% of turnover up to GEL500,000 ($145,000 U.S) and 3% on amounts exceeding that for income within Georgia. Income from outside Georgia is tax free.
- Republic of Georgia: The CIA World Factbook
- International Tax Highlights: Republic of Georgia 2021 (Deloitte)
- Georgia Commits to International Standards of Financial Information Exchange by 2023
- Tax Residency in the Republic of Georgia
- Nine Reasons to Get Residency in the Republic of Georgia
- Getting Georgian Citizenship
Jersey (Channel Islands)
One of the Channel Islands, Jersey, which is a self-governing dependency of Britain, has had a reputation as a tax haven for many years. While it’s tax haven status has been tarnished by signing more than thirty TIEAs under pressure from the OECD, it nonetheless still offers advantages, especially to businesses that establish tax residency in its jurisdiction.
In respect of individual taxes, Jersey’s income tax rates are hardly worth the effort. Jersey extracts 20% from high-net-worth individuals (HNWIs) establishing residence there. As of 2021, prospective HNWI residents must contribute at least £145,000 ($201,000 U.S.) annually to the island and meet a minimum income requirement each year of £725,000 ($1,000,000 U.S.). If income exceeds the minimum, an additional 1% tax is imposed. In addition to all this, if you live on the island, a 5% tax on goods and services was introduced in 2011, a stamp duty of 10.5% is charged on the sale of land and immovable property within the jurisdiction, and individual parishes collect property taxes. These latter taxes also affect businesses, of course. The only remaining benefits to Jersey tax residency for individuals are that there’s no capital gains tax, and no tax is levied on capital transfers to and from the island.
Where corporate taxes are concerned, in 2008, Jersey eliminated all taxes for corporations doing business on the island with the exception of financial service firms, which are taxed at 10% of profits, and utilities, rentals, and development projects, which get taxed at a 20% rate. For this reason, Jersey is still a good place to establish a foreign business, though Jersey is beginning to focus on dormant shell companies used as places to park wealth without engaging in substantial business activity, and beginning to require that these firms actually do some business.
There are two kinds of foreign companies in Jersey. The first kind are those companies whose ownership is foreign but which are managed and controlled in Jersey with local directors and board meetings. Such companies are treated as resident in Jersey and subject to local taxes on their income according to their business type. The second kind of company is one that is foreign-owned and managed, but which runs its business through a permanent tax residency in Jersey. These latter companies only pay the taxes on income from their Jersey branch according to their business classification.
- Jersey: The CIA World Factbook
- International Tax Highlights: Jersey 2021 (Deloitte)
- The Island of Jersey’s Tax Information Exchange Agreements
- Income Tax Laws in Jersey (Revised 2019)
- How to Establish Tax Residency in Jersey
- Jersey Residence and Citizenship by Investment
- Moving to Jersey: Money and Tax
- Taxes on Foreign Companies in Jersey
- Jersey No Longer a Safe Haven for Dormant Shell Companies
In a history that spans over three centuries, land-locked Liechtenstein’s prosperity is a relatively modern affair. Teetering on the brink of bankruptcy after World War I, it entered into a customs and monetary agreement with Switzerland in 1924 that was the beginning of its path into a modern industrial and service-industry economy. One of its key selling points was low taxes. In 1955, it described itself as a country where citizens could dwell almost tax free (the highest bracket paid 1.4% at the time) and foreign corporations could enjoy only minimal taxation. Though it endured some tough financial times in the 1960s when the ruling family was forced to sell off its art collection of Old Master paintings to the highest bidders, by the 1970s its free-enterprise economy was booming, with a lively industrial sector and vibrant financial sector. As of its 300th anniversary in 2019, Liechtenstein was the world’s richest country per capita, having one of the lowest corporate tax rates on the European continent at 12.5%, and very flexible and inexpensive incorporation laws that have led to the establishment of a many holding companies in its jurisdiction.
More recently, especially after the tax scandal in 2008 (see the discussion in section 4.5, above), international pressure has been brought to bear on the principality because of the lack of transparency of its banking and taxation systems. Until 2009, for instance, it made a lovely distinction between tax evasion and tax fraud, and refused to supply foreign nations with any data except in clear cases of tax fraud. While things have tightened up as a consequence of the scandal and Liechtenstein has relented in respect of some OECD-driven legislation, it still remains a very useful tax haven.
The top tax rate in Liechtenstein is 8% for individuals making over 200,000 CHF ($219,000 U.S.). However, there are local communities within Liechtenstein that levy a surtax on the national tax that raise the effective tax rates across the different national brackets from 2.5% at the low end through 22.4% at the high end. There is also a value-added tax of 7.7% on many goods and services, a real estate capital gains tax of 3-4%, a wealth tax of 4% on the fair-market value of assets and a tax on charitable donations that would otherwise reduce the wealth tax paid. On the bright side, there are no inheritance, estate, or gift taxes in Liechtenstein, and capital gains from the sale of shares in domestic or foreign corporations is tax exempt. On the whole, then, there are better places than Liechtenstein for individuals seeking a tax break to establish a tax residency. Beyond this, there is stiff competition for the 89 residencies that are offered on a yearly basis, and if you want an investor visa, it will cost you at least $110,000 U.S. and it carries with it the requirement that you create new jobs for the residents of Liechtenstein. Your temporary residency can be converted into a permanent residency after 5 years, and you are eligible to apply for citizenship after living in the country for 30 years.
The most useful thing to do on the corporate side is to set up a holding company in Liechtenstein that acts as an umbrella company for another company. There are four types of holding companies: operational, management, finance, and organization. Only the first (operational) is allowed to carry out commercial activities in Liechtenstein and it is the preferred kind of holding company for large corporations seeking to gain tax advantages by establishing a base in Liechtenstein. The sole function of management holding companies is to hold the shares or assets of its subsidiaries and control their cash flow. Financial and organizational holding companies are not that common. A financial holding company merely sits on its assets(!) without running foreign operations from its base in Liechtenstein, and an organizational holding company exists for the sole purpose of startups and acquisitions of other companies. Any of these holding companies can take the form of a foundation, a trust, or an establishment, the last being the only one that is allowed to pursue commercial activity and requiring a minimum share capitalization of 30,000 CHF ($33,000 U.S.). All types of holding companies enjoy tax benefits that include no tax on capital gains or dividends, and special tax deductions related to intellectual property ownership. If any taxes are due at all in the jurisdiction of residency, the corporate flat tax rate is 12.5%. While the procedure for establishing a Liechtenstein holding company is fairly quick and efficient, if you are in a hurry, a variety of shelf companies, usually LLCs, that are already incorporated and ready for purchase are available.
- Liechtenstein: The CIA World Factbook
- International Tax Highlights: Liechtenstein 2021 (Deloitte)
- The 2008 Liechtenstein Tax Scandal
- Liechtenstein’s Implementation of Tax Information Exchange Agreements
- Taxes on Personal Income in Liechtenstein
- Getting Residency and Citizenship in Liechtenstein
- Setting Up an Offshore Company in Liechtenstein
- Holding Companies in Liechtenstein
- Buying a Shelf (not Shell) Company in Liechtenstein
The Grand Duchy of Luxembourg is a land-locked country in Western Europe bordered by Belgium, France, and Germany. It has a reputation as a very tax-friendly environment, especially for large companies. German banks, in particular, have taken advantage of the fact that the dividends of many companies are not taxed in the jurisdiction, and both private and institutional investors benefit from the fact that not even long-term capital gains are taxed as long as the shareholder owns less than 10% of the company. Luxembourg also does a brisk business in shell companies/holding companies that minimize the taxes of the entities controlling the shells.
While the published top tax rate for companies operating in Luxembourg adds to 24.94%, with a 17% basic corporate tax rate, to which is added a 6.75% municipal business tax, and a 1.19% contribution to an employment fund, in 2014, private tax agreements with Luxembourg discovered by investigative journalists showed that hundreds of multinational corporations pay an effective tax rate of less than 1%.
For instance, the “Luxembourg Leaks” documents revealed that FedEx had established two affiliates in Luxembourg for the purpose of transferring earnings from Mexico, France and Brazil to the company’s affiliates in Hong Kong, and that Luxembourg had signed a private agreement to tax the income at a rate of 0.25%, leaving 99.75% of funds to be transferred free of any taxation. Over 340 companies around the world—including Amazon, Apple, AIG, FedEx, Fidelity, Heinz, IKEA, Office Depot, Pepsi, and Staples—have set up subsidiaries in Luxembourg with special arrangements that provide them with substantial tax relief.
With such arrangements in place, it is perhaps unsurprising that even though Luxembourg has a population less than one-five hundredth that of the United States, it attracts an equivalent amount of foreign direct investment, that is, around $4 trillion, or about $6.6 million per person.
While companies resident in Luxembourg are (ostensibly) taxable on their worldwide income, non-resident companies are only taxable on their local income in the jurisdiction. If no income is earned in Luxembourg—as is the case with many shell/holding companies—then no tax is owed.
For individuals, establishing residency in Luxembourg holds little by way of tax advantages, but establishing a sole proprietor holding company, as in other jurisdictions like Denmark and Liechtenstein, can provide considerable benefit and can be part of a good tax reduction strategy.
- Luxembourg: The CIA World Factbook
- International Tax Highlights: Luxembourg 2021 (Deloitte)
- Financial Account Information Exchange in Luxembourg
- Taxation in Luxembourg
- Corporate Income Tax in Luxembourg
- Global Companies’ Secret Tax Deals in Luxembourg
- The “Luxembourg Leaks” Database
- Setting Up an Offshore Company in Luxembourg
- The Rise of Phantom Investments and the Case of Luxembourg
- Luxembourg Defends Itself Against Charge of Being a Tax Haven (As If That Were a Bad Thing!)
The Republic of Malta is a Southern European island country in the Mediterranean Sea, directly south of Sicily. The tax regime in Malta provides tax information on specific request and does not involve an automatic sharing of financial accounts; all information about accounts held in Malta is, however, available in principle. Getting Maltese tax residency is not overly attractive and the only benefit of Maltese citizenship—which can be obtained by investment—is that Malta is a full member of the EU and the privileges of EU citizenship accompany it. Unfortunately, this latter benefit seems soon to disappear because the European Commission has initiated legal proceedings against Malta for giving non-EU residents access to EU citizenship through its citizenship-by-investment program. If the prospect of an easy pathway to EU citizenship disappears, the only thing Maltese residency for foreign nationals offers is a flat tax rate of 15% on most sources of income for those with one or another kind of Maltese residency status. For Maltese citizens, however, income arising in Malta is taxed at a top rate of 35%. Ouch.
Forming an offshore company in Malta can still be advantageous, however, and can be accomplished in as little as two days. Companies located in Malta are subject to a corporate tax rate of 35%, but if the company is owned by foreign shareholders, they are eligible for a refund of 30%, making the effective corporate tax rate 5% for foreign-owned businesses. Holding companies have various advantages, including not being required to have an office registered in Malta, no corporate tax on dividends and capital gains realized by non-resident entities, no stamp duties, no entry and exit fees, and no exchange controls . All companies, however, must have the details of their capital, shareholders, directors, and registered offices (if required) available as a matter of public record, and all companies must prepare financial statements each year that are audited by a resident auditor, even if the company has not engaged in any business activity. A company’s annual return is filed with the Registry of Companies (along with a fee ranging from €100 to €900, depending on share capitalization). A tax return must also be submitted to the Maltese tax authority.
- Malta: The CIA World Factbook
- International Tax Highlights: Malta 2021 (Deloitte)
- Maltese Tax Information Exchange Agreements
- Advantages of Tax Residency in Malta
- Offshore Companies in Malta
- Maltese Holding Companies
- Maltese Citizenship by Investment
- European Commission Initiates Legal Proceedings against Malta for Breach of Trust in its Citizenship by Investment Program
Montenegro is located in Southeastern Europe between the Adriatic Sea and Serbia. Its name, “Black Mountain” (Montenegro), comes from the highland region in the Serbian province of Zeta. Throughout its history it has been a part of larger political entities, including Yugoslavia and then Serbia, but it voted for its independence in 2006 and has been transitioning to a capitalist economy and pursuing Western European political ties ever since. In 2008, it applied to join the European Union and is currently concluding its EU accession process, anticipating its completion in 2025. It joined NATO in 2017. In 2019, it also signed on to the Convention on Mutual Administrative Assistance in Tax Matters and adopted the Common Reporting Standards (CRS) of the OECD.
As far as EU countries go, it has one of the more attractive tax regimes. It has the freest economy in the Balkans, a top personal income tax rate of 11%, a 9% corporate tax rate, and a 9% capital gains tax. While Montenegro had a citizenship by investment program, it is phasing it out at the end of the year, mostly because it wants membership in the EU and the EU is opposed to such programs (see the discussion of this issue with respect to Bulgaria and Malta, above). In its place, Montenegro is working on the details of a new program that will attract highly qualified specialists to the country and, currently at least, offer an EU-sensitive path to citizenship. Stay tuned.
In the meantime, all companies formed in Montenegro, regardless of local or foreign ownership, are subject to the same taxes, which means that corporate entities are taxed at a 9% flat rate. Montenegro is not a holding company regime and there are no real tax advantages to setting up a holding company in the Montenegrin jurisdiction. The primary advantage to establishing a corporate residency in Montenegro is that it has one of the lowest flat tax rates in Europe.
- Montenegro: The CIA World Factbook
- International Tax Highlights: Montenegro 2021 (Deloitte)
- Montenegro Joins OECD International Tax Reporting Agreements
- Convention on Mutual Administrative Assistance in Tax Matters (OECD)
- Advantages of Tax Residency in Montenegro (slightly dated information)
- Setting Up an Offshore Company in Montenegro
- Montenegro’s Citizenship by Investment Program Valid Only Until the End of 2021
We will explore more of the financial reputation and mystique of Switzerland in the next section, but let’s have a brief overview of some salient points. Located in central Europe, Switzerland has been fiercely independent of its neighbors throughout its history. It is not a member of the European Union, though it has adopted at least 120 bilateral agreements with EU states as well as various provisions of EU law that enable it to participate in the EU’s single market. Since Britain’s exit from the EU, however, anti-EU sentiment has been growing in Switzerland, especially in relation to the free movement of foreign workers, who move into the country and take Swiss jobs.
The Swiss passion for independence has also, historically, made Switzerland an excellent place for private bank accounts and the discreet conduct of financial business. Because of a banking scandal in 1932, the Swiss passed a law in 1934 that made it a criminal offense to release information about clients or the identity of account holders. The strongest privacy comes from numbered accounts that are identified by their number rather than the account holder’s name, which is known only to select staff members at the bank.
Unfortunately, bullied by the IRS and under the threat of stiff sanctions by the U.S., Swiss banks have agreed to share information about accounts held by U.S. persons under U.S. FATCA legislation, which requires all U.S. persons to declare every foreign account they hold. Nonetheless, it’s still possible to shield assets from criminals and creditors without breaking the law. Assets can be held in entities such as trusts and LLCs in non-U.S. jurisdictions like Switzerland that require specific allegations to be made and judgments rendered in that foreign jurisdiction before information can be disclosed. Residents of nations plagued by groundless seizure of property or by otherwise unfair systems of asset appropriation can thus still benefit from the creditor protection of a Swiss bank account.
If you want to set up an offshore company in Switzerland, the Swiss require that the registered office for the company be in Swiss jurisdiction and that management decisions be made in Switzerland. For non-residents, this requires hiring a Swiss firm that specializes in establishing such companies. Such firms offer citizens of Switzerland as directors and associates and secretaries, all of which is required by Swiss legislation. It can also be arranged that the foreign citizen(s) owning the business do not appear in the company’s records if this service is requested. Under these conditions, the real shareholders cannot be disclosed by the associates of the firm unless credible specific allegations of real criminal activity—drug trafficking, arms trafficking, sex trafficking, etc.—are made. The firm performing this service signs a statement of confidence with the shareholder(s) guaranteeing that it will only undertake operations ordered by the real shareholder(s). The contract also includes the email address from which the actual shareholder’s instructions are received and all communications take place using encrypted accounts.
There are four types of Swiss offshore companies: Aktiengesellschaft (AG), private limited liability companies (GmbHs), trusts, and foundations. AGs offer the advantages of a corporate structure with the flexibility of a partnership with tax benefits for all the partners. GmbHs are essentially LLCs protecting their shareholders. AGs and GmbHs can be holding companies. Trusts transfer assets and their management to an administrator as the legal owner who has a fiduciary obligation to the trust’s beneficiaries. Finally, foundations are like trusts that have the advantages of functioning like a company and provide a versatile tool for exercising the rights of the shareholders and managing real estate ownership, inheritances, and estate planning. The activities of Swiss offshore companies are restricted in that they are prohibited by law from the business pursuit of banking, insurance, reinsurance, fund management, collective investment, or any other activity that might suggest an association with the banking or financial industries.
A Swiss holding company is an AG or a GmbH the primary purpose of which is to hold and manage participation in other companies. Swiss tax law requires that a holding company not conduct any other business activity in Switzerland. Three other conditions govern holding company status in Switzerland: (1) investments held and revenues earned from participation in other companies must comprise two-thirds of the entire assets and income earned by the company; (2) there either must be at least one participating company that exceeds 10% of the total number of participating shares or the entire value of the shares must exceed one million CHF ($1,100,000 U.S.) for the company to qualify as a holding company; and (3) the minimum holding period of an investment must be more than one year.
Where taxes are concerned, the standard value-added tax (VAT) rate for corporate profits in Switzerland is 8%, and this varies depending on cantonal taxation. There are also reduced VAT rates for hotels (3.8%) and basic food products (2.5%). The accounting documents for all companies must be kept and filed with appropriate authorities and certain kinds of businesses have audit requirements as well.
On the whole, while the security of Swiss bank accounts is a wonderful thing, there are other European jurisdictions that provide more tax advantages for the establishment of offshore holding companies.
Obtaining a Swiss residency permit is required if you want to work or pursue business activities in Switzerland, and can be advantageous as well if you have a large annual income and do not need to work in Switzerland, because it is possible to pay lower income taxes through their lump-sum taxation system. Lump-sum taxation is a simplified assessment procedure for foreign nationals living in Switzerland but not gainfully employed there. The tax is calculated from the total annual cost of living for the taxpayer and his or her dependents in Switzerland and abroad. Swiss citizenship is obtainable after ten years of legal residency in the country, but this process can be accelerated by investment in the Swiss economy through business establishment or a lump-sum tax payment—either way, it is not an inexpensive proposition.
- Switzerland: The CIA World Factbook
- International Tax Highlights: Switzerland 2021 (Deloitte)
- Bilateral Agreements between Switzerland and the European Union
- The EU’s Next Big Problem is Switzerland
- Setting Up an Offshore Company in Switzerland
- Swiss Holding Companies
- The IRS Has Bullied Swiss Banks into Submission
- Financial Account Tax Information Exchange Between Switzerland and Foreign Nations
- Tax Advantages of Swiss Residency
- Lump-Sum Taxation in Switzerland
- Swiss Citizenship by Investment
[NOTE: This article is a chapter in our
Comprehensive Guide to Tax Havens.]