Europe’s Best Tax Programs for Expats

The Portuguese government’s announcement—in the fall of 2023—was little noticed at the time. But its implications soon reverberated across the global expat community.

In what turned out to be his last State Budget Proposal, Prime Minister António Costa said his government intended to end the country’s Non-Habitual Resident (NHR) tax regime as of January 1, 2024. The NHR granted a 10% flat tax on foreign pensions and exempted foreign interest, capital gains, dividends, and royalties from tax. Income tax on money earned within Portugal was capped at 20%.

Costa was soon out as PM. But the incoming coalition government terminated the NHR anyway.

And with that, one of the best tax programs in Europe was gone.

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Like the country’s famed Golden Visas, the NHR was introduced in 2009 to attract foreign residents (and their money). The global financial crisis of 2008 had devastated the economy, particularly the property sector. Throwing open the market to foreigners and promising them big tax breaks helped to stave off financial collapse.

But the Golden Visa/NHR policy package worked too well. After a decade, price pressures in Portugal’s residential housing market became intolerable. Locals protested that they couldn’t afford homes thanks to all the investors snapping up properties. Faced with marches in the streets, the government decided to end both.

Putting an end to these programs made headlines around the world.

But there’s good news if you want to move to Europe but don’t want to pay high taxes. Plenty of other countries have money-saving programs for expats.

Six Central and Eastern European countries stand out for their low tax rates. Four apply a fixed rate across the entire population. Two have progressive tax rates that top out at much less than the US.

All these countries have "tax treaties" with the US. These give you credit on your US income taxes for anything you’ve paid to their governments.

For example, if you owe $10,000 in income tax to Bulgaria, you can deduct that entire amount from your US tax bill. Of course, since all six of these countries have rates below the US top rate (37.5%), most retirees will pay something to the IRS in the end.

On the other hand, if you’re still working, you can qualify for the Foreign Earned Income Exclusion in these countries and benefit from a much lower tax burden than you’d face in the US. (The FEIE allows you to exempt $130,000 of your income from US tax.)

Here’s a rundown on the three countries that offer a fixed tax rate.

Romania: The “Paris of the East” with Big Tax Savings

Experience affordable living and charm in Romania's scenic cities.|©iStock/Adrian Catalin Lazar

Romania—whose capital, Bucharest, is known as the "Paris of the East"—has an added advantage for Americans. Most countries tax Social Security benefits as regular income. If you live in a country with a higher tax bracket than the US—Portugal, for example—you’ll pay income tax in the US and you’ll owe an additional amount to your new home country.

Romanian taxes are lower than in the US. And by special treaty, Social Security benefits are taxed by Romania (at only 10%), not by the IRS at all.

Three Mediterranean countries also offer special tax incentives to people who relocate there: Malta, Italy, and Greece. I'll say more about the latter two below.

Italy: Move South and Pay Just 7%

Italy offers a slower pace, rich history, and affordable Mediterranean living|©iStock/Eloi_Omella

Italy has a special tax regime for foreign pensioners relocating to its southern regions, including Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia (Apulia). In addition to moving to one of those places, you must settle in a town with fewer than 20,000 inhabitants.

This regime allows retirees to benefit from a flat 7% tax rate on all foreign income, including pensions, for nine years. It’s available to anyone who has not been an Italian tax resident for at least two out of the previous 10 years.

Italy offers a similar program for people who are still working. If you settle in the areas above, you get a 90% tax exemption from employment or self-employment in Italy.

Italy also offers a special flat tax rate of €200,000 per year to high net worth individuals who move there. For very wealthy people who might be on the hook for hundreds of thousands of euros more than that, it’s an attractive proposition.

Greece: A 15-Year Tax Break

From digital nomads to investors—explore your path to residency in Greece.|©iStock/ugurhan

Greece offers a flat tax rate of 7% on all foreign income, including pensions, for individuals who transfer their tax residency to Greece. This favorable rate applies for a period of 15 years and does not require a minimum property investment.

To be eligible, you must not have been a Greek tax resident for five out of the last six years. In addition, you must come from a country that has an Administrative Cooperation Agreement with Greece, which thankfully includes the US and Canada. These agreements allow the Greek government to share tax information with foreign governments.

Like Italy, Greece also offers a flat tax for high net worth individuals—it’s half that of Italy’s, at €100,000 per year.

Checklist: Planning Your Tax Move

It’s obviously important to think about taxes before you make a move to Europe. Here’s a checklist of some of the key factors to consider:

• What will be the source of most of your income once you’re living in Europe?

• What is your likely tax bracket once you’re there?

• Will the lower cost of living (including healthcare) balance out any added taxes you will have to pay?

• Are there any special provisions in the tax treaty between your new European country and the US or Canada—for example, articles exempting Social Security income from US tax?

• Will assets you acquire in Europe (like a home) be subject to local inheritance or estate taxes? If so, have you explored alternative estate plans to avoid this?

• Do you understand your US tax filing obligations, as well as your reporting obligations under the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR)?

Getting ready for your new tax situation is one of the most important tasks you can undertake before you make your move. That’s why I offer personal consultations to subscribers to help you prepare.

How a Roth IRA Gives You an Advantage

One of the cleverest tricks potential immigrants to Europe can use is to convert some of their retirement savings into a Roth IRA before they leave. Although retirement accounts like these aren’t common in Europe, some jurisdictions recognize the tax-exempt nature of Roth distributions. They include the UK, France, Germany, Belgium, Estonia, Latvia, Lithuania, and Malta—countries where you won’t pay local income tax on Roth payouts.

In others, such as Portugal, there isn’t a specific US tax treaty provision exempting Roth income, but the legal approach is to treat Roth distributions as a drawdown of savings, which are exempt from tax.