Alternative European residency options for Polish HNWIs, entrepreneurs and top executives

High-net-worth individuals (HNWIs), entrepreneurs and top executives may seek an alternative residence outside Poland for several reasons – quality of life, wealth diversification, enhanced security or legacy in respect of improved long-term family opportunities. In choosing where to move, certain locations offer tax-friendly residency regimes that can assist in maintaining and growing a family’s wealth. Here we look at four popular locations situated on the European continent.

Gibraltar

Outside the EU, Gibraltar provides a very attractive home for many HNWIs through its ‘Category 2’ residency regime. If you have substantial assets, the Category 2 regime enables you to enjoy a Mediterranean lifestyle and climate, whilst living in an international finance centre with a favourable tax regime. To qualify, you must satisfy certain criteria, including demonstrating a minimum of £2 million (c. PLN11.5 million) in net assets and undertaking the purchase or rental of a suitable residence in Gibraltar.

Category 2 residents are, generally, only taxable in Gibraltar on the first £105,000 (c. PLN 597,933) of annual income, irrespective of their total income (spouse and family income may be included). This means a Category 2 resident’s annual Gibraltar tax liability will generally range from £32,000 to £37,310. In addition, Gibraltar imposes no capital gains tax, inheritance tax, gift tax, wealth tax or VAT, making it a highly tax efficient base for the relocating HNWI.

The UK, with Gibraltar, is currently negotiating with the EU for a post-Brexit agreement that would create a common travel area between Gibraltar and the Schengen zone countries.

European Union

For alternative residence inside the EU, Sovereign recommends, and can also assist with, applications to Portugal, Malta and Cyprus. EU/EEA/Swiss nationals are entitled, under the freedom of movement principle, to live in all these countries for a period of up three months without any conditions or formalities other than holding a valid identity card or passport.

For periods of more than three months, EU/EEA/Swiss nationals and their family members must apply for a registration certificate or permit granting ‘ordinary residence’ by fulfilling at least one of the following conditions: economic self-sufficiency, employment or self-employment, or study purposes.

Portugal

In addition to these residence permits, Portugal offers a special tax regime for Non-Habitual Residents (NHRs) that enables qualifying entrepreneurs, professionals, retirees and HNWIs to enjoy reduced rates of tax on Portuguese-source income, while most foreign-source income is exempt from Portuguese taxation, for 10 years. Foreign pension income received in Portugal is subject to a flat 10% tax rate.

EU/EEA/Swiss nationals will need to meet the criteria for being a tax resident in the year of application. The simplest way of achieving this is to be present in Portugal for more than 183 days. Portuguese-source salary or self-employed income derived from one of the eligible professions (listed below), would then be subject to a final flat rate tax of 20%. This is significantly lower than Portugal’s standard tax rate of between 14.5% and 48%.

There is no inheritance tax, gift tax or wealth tax in Portugal for NHRs. Non-Portuguese income in most categories – including self-employed income, real estate income (rentals), capital income (interest and dividends) and capital gains on property – will also be exempt from Portuguese personal income tax if it is taxable in another country.

In addition to the long list of eligible NHR occupations, directors and managers of businesses that promote productive investment in eligible projects that qualify for tax benefits under the Investment Tax Code can also qualify for NHR status.

Malta

The Malta Residence Programme (TRP) entitles EU nationals to obtain a special Malta Tax Status and Maltese residence permit through a minimum investment in property in Malta. A flat rate of 15% tax is charged on foreign income remitted to Malta, with a minimum amount of €15,000 tax payable per annum (income arising in Malta is taxed at a flat rate of 35%). This applies jointly to income from the applicant, his/her spouse, and any dependants. Foreign source income that is not remitted to Malta is not taxed in Malta.

To qualify for the TRP an individual must purchase property costing a minimum of €275,000 (reduced to €220,000 if the property is in Gozo or the south of Malta) or pay a minimum of €9,600 per annum in rent (reduced to €8,750 per annum in Gozo or the south of Malta). There is no minimum day stay requirement, but TRP holders may not reside in any other jurisdiction for more than 183 days per year.

Cyprus

Whilst Cyprus tax residents are subject to tax in Cyprus on their worldwide income, a number of tax benefits are available to tax residents of Cyprus who qualify under the ‘non-domicile’ tax regime. Non-domiciled tax residents are exempted from the Special Defence Contribution (SDC), which means they can enjoy dividend and interest income free of tax, while rental income in Cyprus is only taxable at normal rates.

An individual is generally considered to be tax resident in Cyprus if he/she is present in Cyprus for more than 183 days in a tax year. However, the ’60-day rule’ gives individuals the option to become tax resident after spending only 60 days in Cyprus if they do not reside in any other country for more than 183 days and are not a tax resident in any other country. This provides an incentive to individuals seeking to change their tax residency to Cyprus whilst also spending time in different jurisdictions during the year.

Cyprus imposes low progressive income tax rates, with the first €19.500 being tax exempt. There is no income tax on salaried services rendered outside Cyprus for more than 90 days in a tax year, while income from Cyprus-based employment that exceeds €100,000 per annum enjoys a 50% income tax exemption for 10 years. Overseas pension income is exempt from tax up to €3,420 per year and taxed at only 5% above that amount.

In addition, there is no tax in Cyprus on profits from the disposal of securities, including shares, bonds, options and units in collective investment schemes, no Capital Gains Tax on assets other than immovable property situated in Cyprus, and no wealth, inheritance taxes or gift taxes.

Sovereign

Sovereign Tax Services is a Gibraltar-based tax compliance and advisory firm, specialising in Gibraltar tax and residency. We can advise on and manage Gibraltar residency applications, in addition to providing tax and structuring expertise, based on individual circumstances.

Ewelina Jakimowicz has joined Sovereign Group as a Business Development Manager. Originally from Poland but based in Gibraltar for over nine years, she is a fully qualified ACCA accountant with over 15 years of experience with leading firms including PwC and RSM. Ewelina specialises in the crypto space, company formation and residency programmes for Polish individuals who would like to move abroad.