Beyond the Golden Visa: How to Save on Taxes in Europe

Best Places to Retire 2023 Greece Number 7

Special visa regimes in Europe have seen a lot of changes this year. Ireland and Portugal scrapped residential Golden Visa options, and Greece has raised minimum investments in certain parts of the country.

But sometimes overlooked in the discussion are the fantastic opportunities using other visa categories.

One that’s received plenty of deserved attention is the digital nomad visa. This allows people who can work remotely to stay for an extended time in a country as long as they are working for a foreign employer or clients. Some countries, such as Portugal and Greece, throw in favorable tax treatment of these foreign earnings.

But what if you’re retired? There are certainly plenty of European options for retirement or independent means visas… but what about taxes? Few people want to retire in a foreign country and end up paying more than they would at home.

Fortunately, some of the most popular retirement destinations in Europe offer excellent tax benefits for long-term residents.

For example, Greece offers a 7% flat tax on foreign source income, whether that's pensions, rents, or dividends. This gives you a 7% flat tax on all foreign source income. It lasts for 15 years, about the average length of an active retirement.

Italy has a similar regime, also offering a 7% flat tax rate on foreign source income. The only requirement is that you settle in a southern Italian town of less than 20,000 inhabitants in Abruzzo, Basilicata, Calabria, Campania, or Puglia, or the islands of Sicily or Sardinia. It lasts 10 years.

Both programs rest on the foundation of tax treaties with the United States. These are agreements that prevent the same income from being taxed twice by the two signatory countries. So, for example, if you settle in either Greece or Italy, you'd pay 7% tax on income from U.S. investments or pensions, but that amount would be deducted from your U.S. income tax liability. Most European countries have such treaties with the U.S.—the only ones that don't are in the Balkans, or on the Eastern European periphery.

Given that tax treaties give you credit for taxes paid to a foreign government, you may wonder why it's important to look for countries with favorable tax rates. That’s because some countries have tax rates higher than the U.S. for certain tax brackets.

For example, let’s say a country taxes residents who earn between $22,000 and $28,000 a year at a marginal 37% rate. In the U.S., the same income would be taxed at 12%. So even though you can deduct taxes paid to that country from your U.S. tax, you’d still pay more overall. So, you wouldn't want to live in a country like that.

Of course, there are other ways to save on taxes if you live in a European country. For example, 20 European nations impose no taxes on foreign dividend or capital gains income. Some countries impose a tax on a portion of such foreign source income, usually about 5%. So, if your primary source of retirement income is from those kinds of investments, the only taxes you'd need to worry about would be from the IRS.

But for the best tax outcome of all, there's a secret weapon any American with a retirement account can take advantage of. I'm going to be covering it in detail in my Global Citizen service in the coming months!

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Video: Big Changes To Portugal’s Visa And Tax Regimes