As European countries face mounting fiscal pressure from sluggish growth, ageing populations, and rising defense budgets, several are turning to a controversial strategy — courting the ultra-wealthy with generous tax incentives.
Governments are increasingly offering tax perks in hopes of luring affluent individuals who may bring in capital and consumer spending. This competition, however, is sparking political backlash and diplomatic tensions.
Italy’s flat tax appeal
Italy has become a favored destination for high-net-worth individuals, not just for its lifestyle, but for its flat tax regime. The scheme enables foreigners to pay a fixed annual fee on all income earned abroad, regardless of the total amount. That fee recently doubled from €100,000 to €200,000 and is available for up to 15 years, but only to those who haven’t been Italian tax residents for 9 of the past 10 years.
“Italy is very popular,” tax and immigration advisor David Lesperance told Euronews Business. “When the flat tax was €100,000, one of my clients told me that’s what he paid his accountant every year. You’ve got to remember that, with the lump sum tax, there are no compliance costs for tax planning.”
Switzerland’s expense-based taxation
Switzerland offers a similar “forfait fiscal” system in certain regions, where tax is calculated not on income or wealth, but based on personal expenses. To qualify, individuals must not be Swiss citizens and must be relocating to the country for the first time or returning after a decade-long absence. They are also barred from employment or operating a business locally.
The federal minimum for this tax base is either seven times one’s annual rent or property rental value, or CHF 429,100 (around €455,000), whichever is higher. Regional authorities can impose stricter thresholds.
Portugal’s tax break evolution
Portugal’s initial Non-Habitual Residence (NHR) regime attracted thousands of retirees and wealthy expats by offering minimal tax on foreign income for a decade. It caused housing pressures and diplomatic strains, especially with Nordic nations, prompting reform.
“Portugal had the NHR regime which allowed you to live in Portugal for up to 10 years and not pay much tax on foreign income,” explained Gregory Goossens, a tax lawyer at Taxpatria.
Portugal has since revamped the policy. The new NHR 2.0 focuses on attracting educated professionals, offering a flat 20% income tax rate and select foreign income exemptions, though pensions are now fully taxed.
Shell companies and corporate tax arbitrage
Wealthy individuals also reduce tax exposure by setting up shell companies — legal entities with no active operations — to shift income away from personal taxation. According to the EU Tax Observatory, these firms often fall in the grey area between legal avoidance and illegal evasion.
This tactic is especially effective in low corporate tax jurisdictions. Ireland (12.5%), Hungary (9%), Bulgaria (10%), and Cyprus (12.5%) are prime examples. Although more than 140 countries have signed a deal for a 15% minimum global corporate tax, implementation is still ongoing and limited to firms with annual revenues over €750 million.
Weighing the broader impacts
Experts say that tax decisions should factor in a broad range of charges beyond income tax, including capital gains, inheritance, wealth taxes, and social contributions. Some countries not typically seen as tax havens, like Belgium, can offer advantages depending on income structure.
Malta and Monaco also remain attractive for tax planning, though the benefits vary case by case.
“Nations would not provide tax breaks or specialist visas to the wealthy unless they resulted in a greater overall benefit to the state than the cost,” argued Jason Porter, business development director at Blevins Franks Financial Management.
“You could say whatever tax they collect will be greater than they would have without the encouragement, as the individuals concerned are unlikely to have moved there otherwise.”
“It is also important to realise what the total benefit might entail, including the property market, spending in local businesses and the potential for entrepreneurial investment locally.”
As the global tax landscape continues to evolve, the debate over the merits and downsides of attracting wealthy residents is likely to intensify.
