When it comes to starting a business, the geographical location and legal jurisdiction can significantly influence the success or failure of the venture. Among numerous international options, Bulgaria has emerged as an attractive destination for business incorporation due to its numerous advantages. However, the business landscape isn’t without its challenges and grey areas.

Why Incorporate in Bulgaria?

Favorable Taxation

Arguably the most attractive benefit of incorporating a company in Bulgaria is the favorable taxation system. Bulgaria boasts one of the lowest corporate tax rates in the European Union, a mere 10%. In contrast, many Western European countries have corporate tax rates above 20%, making Bulgaria an attractive alternative for entrepreneurs seeking to maximize their profits.

EU Membership

Bulgaria’s membership in the European Union offers businesses access to a single market of over 450 million people. This facilitates the movement of goods, services, capital, and people across member countries, creating opportunities for businesses to expand and diversify their consumer base. Furthermore, Bulgarian businesses also have access to various EU funds and subsidies.

Ease of Business Incorporation

The process of incorporating a company in Bulgaria is relatively straightforward, with a low minimum capital requirement of 1 BGN (approximately 0.5 Euros). This opens the door for entrepreneurs of all financial backgrounds to start their businesses.

Skilled Labor Force

Bulgaria has a highly educated workforce, particularly in the fields of engineering, IT, and other technological industries. This is an appealing factor for businesses in the tech industry or those that require specialized skills.

Challenges and Grey Areas

Despite the advantages, incorporating in Bulgaria comes with its fair share of challenges and grey areas.

Language Barrier

One of the most notable downsides is the language barrier. While English proficiency is growing, especially among younger Bulgarians and in urban areas, it is not as widespread as in many other EU countries. This could pose difficulties in daily business operations, negotiation processes, and overall communication.

Perception and Reputation

There may also be some challenges associated with perceptions about doing business in Bulgaria. Due to its relatively recent history of corruption, some potential business partners or customers might view a Bulgarian-based company with suspicion. This could necessitate additional efforts to establish trust and credibility.

Regulatory Compliance

While Bulgaria offers a favorable business environment, regulatory compliance might be a grey area for some businesses. While it’s easier to start a business, the legal and bureaucratic procedures can be complex and time-consuming. Moreover, businesses that are unfamiliar with local regulations might face difficulty navigating this landscape.

Corporate Governance

Another grey area is corporate governance. While the corporate governance standards in Bulgaria are aligned with international norms due to its EU membership, the enforcement of these standards can sometimes be weak. This might create a risk for businesses, particularly those looking for investment or partnerships.

Alternatives to Incorporating in Bulgaria

While Bulgaria is an attractive location for incorporating a business, there are other alternatives that could be more suitable depending on the nature and needs of your business. Let’s examine a few alternatives, including Malta, Cyprus, Ireland, and other Baltic countries.

Malta

Malta is an enticing destination for entrepreneurs looking to incorporate their business in an EU member state. With competitive tax rates, including an effective corporate tax rate that can be reduced to 5% through tax refunds, Malta offers a business-friendly environment. The island nation is particularly attractive for industries like iGaming, fintech, and blockchain, thanks to progressive regulations. However, it is worth noting that Malta has come under scrutiny from EU authorities over its financial regulations and its fight against money laundering. As a result, businesses may face increased scrutiny and regulatory compliance measures.

Cyprus

Cyprus is another popular choice for business incorporation. It offers an appealing mix of low corporate tax rates (12.5% as of 2021), a robust legal framework based on English Common Law, and a strong network of double taxation treaties. The country also has a thriving services sector, which is a boon for companies in finance, shipping, and IT. Nevertheless, the country’s reputation took a hit due to the 2013 banking crisis. Although it has since recovered and implemented stricter financial controls, the memory may still raise concerns among potential investors and partners.

Ireland

Ireland is widely recognized as a global hub for business and innovation. It offers a low corporate tax rate of 12.5%, a highly skilled workforce, strong infrastructure, and an English-speaking environment, making it particularly attractive for international businesses. The country is a hotspot for tech giants, including Google, Apple, and Facebook, which have set up their European headquarters in Ireland. However, living and operational costs are higher compared to Eastern European countries. Additionally, ongoing international debates around corporate tax havens may lead to changes in Ireland’s tax policies in the future.

Baltic Countries: Estonia, Latvia, and Lithuania

The Baltic countries – Estonia, Latvia, and Lithuania – present a compelling case for business incorporation. These countries are known for their ease of doing business, with straightforward and fast digital processes for business registration. Particularly, Estonia’s e-residency program allows international entrepreneurs to establish and manage an EU-based company online.

The Baltic countries have competitive corporate tax rates (for example, Estonia imposes corporate tax only on distributed profits), a favorable location for trade, and a well-educated workforce with good English proficiency. However, their markets are relatively small, and businesses could face higher barriers to entry in certain regulated industries.

Conclusion

Incorporating a company in Bulgaria presents an attractive opportunity due to favorable tax rates, EU membership, ease of business incorporation, and access to a skilled workforce. However, potential challenges like language barriers, reputational issues, regulatory compliance, and corporate governance should be considered.

In the end, whether Bulgaria is the right location for incorporating your business will depend on the nature of your business, your target market, and how well you can manage the potential challenges. It is essential to conduct thorough research and consider seeking legal and financial advice to make an informed choice. You should also talk to other entrepreneurs that have incorporated in Bulgaria to get a real sense of what to look out for.

Dental health is extremely important for living well, in fact, research has shown that those with healthy teeth live longer.

Here are some good clinics in the Barcelona area to take care of all your dental needs:

Clinica Smelt

Clinicasmelt is a dental clinic specializing in dental aesthetics. The clinic is based in Granollers but is worth the trip out of Barcelona. They offer a range of services including teeth whitening and complete oral rehabilitations. Their expertise encompasses modern dentistry, periodontics, orthodontics, pediatric dentistry, and prosthodontics. Clinicasmelt emphasizes both aesthetics and functionality in their treatments, ensuring patients receive tailored care. With extensive experience in the field, the clinic assures patients of maximum peace of mind during their treatments

Clinica Blasi

Clínica Blasi exemplifies a unique family-driven approach to dental care. The father, an orthodontist, leads a team of children who are experts in various dental specialties. Each sibling, including an endodontist, an orthodontist, a surgeon, and another orthodontist, has honed their skills in the USA. They are distinguished members of both Spanish and American dental associations, a credential held by only 1% of dentists in Spain. Renowned for their kindness, professionalism, and pursuit of perfection, they often publish pioneering methods in dentistry. The clinic’s collaborative approach is remarkable. For instance, if a case requires multidisciplinary input, the siblings readily consult each other, offering comprehensive care without the need for external referrals or delays. This highly recommended clinic stands out for its exceptional family-centric teamwork and expertise.

In this article, I will discuss some of the benefits of Cyprus for living and for tax optimization. I will also share some of the typical cases I see where Cyprus is used in a tax optimization (and also lifestyle optimization) context.

Cyprus is known as a nice place; it’s a sizeable island in the Mediterranean, which means you can expect:

1. A beautiful and diverse environment: live and work in a stunning Mediterranean setting, with beautiful beaches, rugged mountains, and picturesque villages.
2. Safe and secure living: Cyprus is known for its low crime rates and high safety standards, making it an ideal choice for remote workers seeking a secure environment.
3. Affordable cost of living: Despite its many attractions, Cyprus maintains a relatively low cost of living compared to other European countries.
4. High-speed internet and modern infrastructure: Cyprus has invested significantly in its telecommunication infrastructure, offering high-speed internet access and reliable mobile networks throughout the island.
5. Rich history and culture: Cyprus boasts a fascinating history, with influences from various civilizations that have left their mark on the island’s architecture, cuisine, and traditions.
6. Strategic location: Cyprus’s geographic position at the crossroads of Europe, Asia, and Africa makes it a convenient base to explore nearby destinations.
7. Warm and welcoming community: Cypriots are known for their hospitality and friendly nature, ensuring a warm welcome for digital nomads.

Beyond being a nice place to live, it has some very interesting tax benefits. Here are some interesting facts about the Cypriot tax code:

1. Low corporate tax rate: Cyprus has a relatively low corporate tax rate of 12.5%, making it attractive for companies looking to reduce their tax liabilities.
2. Holding companies: Cyprus is an ideal location for establishing a holding company. Dividend income received by a Cyprus holding company from qualifying subsidiaries is generally exempt from taxes. Additionally, Cyprus does not levy withholding tax on dividend payments to non-resident shareholders.
3. Intellectual property (IP) regime: Cyprus has an attractive IP tax regime that offers an 80% tax exemption on qualifying profits generated from the use, sale, or licensing of IP assets. This results in an effective tax rate of around 2.5% on IP-related income.
4. Double taxation treaties: Cyprus has a wide network of double tax treaties with over 60 countries, which can help minimize tax liabilities by reducing or eliminating withholding taxes on dividends, interest, and royalty payments.
5. No controlled foreign company (CFC) rules: Cyprus does not have any CFC rules in place, making it easier for businesses to establish and manage subsidiaries in other jurisdictions without facing additional tax consequences.
6. Re-domiciliation provisions: Cyprus allows companies incorporated in other jurisdictions to re-domicile to Cyprus, potentially benefiting from the country’s favorable tax regime.
7. No capital gains tax (except for immovable property): Capital gains derived from the sale of securities, such as shares or bonds, are generally exempt from taxation in Cyprus, except for gains derived from the sale of immovable property situated in the country.

Who is Cyprus For?

Given some of the advantages Cyprus offers, these are the most common types of people and setups that involve Cyprus:

• Stock traders and investors
• High Net Worth Individuals (the Non-Dom scheme)
• Corporate setups (12.5% tax)
• Digital Nomads

A Haven for Stock Traders and Investors

Cyprus is obviously an attractive location for stock traders due to the absence of taxation on the sale of securities.

This includes shares, bonds, debentures, options, and other financial instruments. Profits realized from trading these securities are exempt from capital gains tax in Cyprus, as long as the income does not arise from the disposal of immovable property situated in Cyprus or from the disposal of shares in companies that own immovable property in the country.

It is important to note that the tax exemption applies to both residents and non-residents of Cyprus. This means that foreign stock traders can also benefit from the absence of capital gains tax on security sales, provided they meet the necessary requirements and comply with relevant regulations. Typically, foreign stock traders can do this by establishing a Cyprus-based company to carry out their trading activities. Since Cyprus does not impose capital gains tax on the sale of securities, any gains derived from the sale of securities (such as shares, bonds, or options) will not be subject to capital gains tax. These tax-free gains would then be included in the company’s net trading profits, which would then be subject to the 12.5% corporate tax rate.

High Net Worth Individuals – The Non-Dom Scheme

The Cyprus Non-Dom scheme refers to a set of tax incentives designed to attract high-net-worth individuals (HNWIs) and professionals to Cyprus by offering favorable tax treatment for individuals who become tax residents but are considered non-domiciled in the country. The non-domicile status provides substantial tax benefits for those who qualify, making Cyprus an attractive destination for HNWIs and expatriates. This programme is similar to others in place around Europe, the most well-known of which is the Portuguese NHR.

Key aspects of the Cyprus Non-Dom scheme:

1. No tax on dividends and interest income: Non-domiciled individuals are exempt from Special Defense Contribution (SDC) tax, which is levied on dividend and interest income for Cyprus tax residents. This means that non-doms can receive dividend and interest income from both local and foreign sources without being subject to tax in Cyprus.
2. No capital gains tax on the sale of securities: As mentioned earlier, Cyprus does not impose capital gains tax on the sale of securities, such as shares, bonds, or options, for both residents and non-residents. This exemption also applies to non-domiciled individuals, making the country attractive for investors and traders.
3. Low personal income tax rates: Cyprus offers competitive personal income tax rates, with progressive rates ranging from 0% to 35%. Non-domiciled individuals can benefit from these rates while enjoying the exemptions on dividends and interest income.
4. 50% exemption for high earners: Individuals who were not Cyprus residents before commencing employment in the country and have an annual income exceeding €100,000 from their employment in Cyprus may be eligible for a 50% exemption on their income for up to 10 years.
5. 183-day rule for tax residency: To become a Cyprus tax resident, an individual needs to spend at least 183 days in the country within a calendar year. Once an individual meets this requirement, they can benefit from the Non-Dom scheme and other tax advantages available to Cyprus tax residents.
6. No inheritance tax: Cyprus has abolished inheritance tax, making it attractive for wealth planning and preservation purposes.
7. Extensive double tax treaty network: Cyprus has double taxation treaties with over 60 countries, which can help minimize tax liabilities on income sourced from other jurisdictions.

There is also an alternative tax residency rule, commonly known as the “60-day rule,” which can apply to non-domiciled individuals.

Under the 60-day rule, an individual can become a tax resident of Cyprus if they meet the following criteria in a tax year:

1. Stay in Cyprus for at least 60 days (not necessarily consecutive).
2. Do not reside in any other single country for more than 183 days.
3. Maintain a permanent residence in Cyprus, either owned or rented.
4. Carry out any business or employment in Cyprus or hold an office in a Cyprus tax resident company during the tax year.

If an individual qualifies for Cyprus tax residency under the 60-day rule, they can benefit from the Non-Dom scheme and other tax advantages available to Cyprus tax residents, such as exemptions on dividend and interest income.

Corporate Setups – 12.5% Tax

Creating a company in Cyprus is becoming an increasingly popular choice for companies looking to establish a presence in Europe. Cyprus offers a favorable tax system with a low corporate tax rate, as well as a strategic location providing access to markets both in Europe and the Middle East.

The two main types of companies in Cyprus are private limited liability companies and public limited liability companies. Private limited liability companies are the most common and require a minimum of one director and one shareholder, while public limited liability companies require a minimum of two directors and seven shareholders.

Cyprus has a low corporate tax rate of 12.5%, which is one of the lowest in the European Union (it is considered by many to be a low-cost alternative to Ireland, which has a similar corporate tax rate). This means that companies can benefit from a reduced tax burden, which can lead to increased profits and competitiveness.

Update October 2023 – the NHR programme has been suspended indefinitely.

Portugal is one of my favorite countries in the world, and it also happens to have incredibly good conditions for those who wish to move there to optimise their tax situation.

In fact, combined with Malta for a corporate tax base, I believe it’s the best tax optimisation strategy in Europe for owners of small to medium businesses and location-independent entrepreneurs. Portugal is also great for high-net-worth individuals and high-earners within certain professions, as I will detail in this article.

The key to unlocking most of the benefits related to tax in Portugal is the NHR Programme.

The NHR programme was introduced by the Portuguese government in 2009 as part of its strategy to promote the country as a destination for highly skilled individuals, entrepreneurs, and investors. The programme aims to attract talent and investment by offering a favorable tax regime for a period of ten consecutive years, provided the applicants meet certain requirements.

Under the NHR programme, qualifying individuals can benefit from a reduced personal income tax rate of 20% on their professional income earned in Portugal. This reduced tax rate is particularly advantageous when compared to Portugal’s standard progressive income tax rates, which can range from 14.5% to 48% depending on the level of income.

Moreover, certain types of foreign-sourced income may be exempt from taxation in Portugal under the NHR programme, depending on the country of origin and existing tax treaties. These exemptions can apply to income such as interest, dividends, pensions, and royalties. This benefit can be especially attractive for individuals with substantial income from abroad, such as retirees or investors.

The NHR programme also fosters a favorable environment for entrepreneurs and business owners. By offering a competitive tax regime, Portugal aims to stimulate innovation and economic growth, ultimately benefiting the country as a whole.

Eligibility Criteria for the NHR Programme

To qualify for the NHR programme, applicants must meet the following criteria:

1. Be a tax resident in Portugal: To become a tax resident, you need to reside in Portugal for more than 183 days in a 12-month period. Alternatively, if you have a habitual residence in Portugal, meaning a permanent dwelling available to you on a continuous basis, you may also qualify as a tax resident.
2. Not have been a tax resident in Portugal in the previous five years: This requirement is to ensure that the NHR programme targets new residents rather than those who have recently lived in the country. It is important to check your tax residency history to ensure you are eligible for the NHR programme.
3. Qualify as a high-value-added activity professional or have foreign-sourced income: The Portuguese government has a list of high-value-added activities eligible for the NHR programme. This list includes, but is not limited to, professionals such as architects, engineers, scientists, artists, IT professionals, and senior managers. Additionally, individuals with a significant portion of their income derived from foreign sources may also qualify for the NHR programme.

Furthermore, the NHR programme has no minimum investment requirements or minimum stay requirements, making it a flexible option for those considering relocating to Portugal. However, it’s essential to keep in mind that tax residency rules and the criteria for qualifying as a high-value-added professional or having foreign-sourced income may be subject to change, so it’s crucial to stay up-to-date with the latest regulations and consult with a tax professional when considering applying for the NHR programme.

The Application Process for the NHR Programme

The application process for the NHR programme involves several steps, which are detailed below:

1. Obtain a Portuguese tax identification number (NIF): Before you can apply for the NHR programme, you need a Portuguese tax identification number. This can be obtained by visiting the local tax office (Finanças) or through a Portuguese tax representative, who can help you with the entire process. To obtain your NIF, you’ll need to provide identification, such as a passport, and proof of address.
2. Register as a tax resident in Portugal: Once you have your NIF, you will need to register as a tax resident in Portugal. This involves providing proof of residency, such as a rental agreement or property deed, and completing the relevant forms at the local tax office. Keep in mind that you’ll need to meet the tax residency requirements mentioned earlier, either by residing in Portugal for more than 183 days in a 12-month period or having a habitual residence in the country.
3. Apply for the NHR programme: Within six months of becoming a tax resident, you can submit your NHR application to the Portuguese tax authorities. The application can be made online through the Portuguese Tax Authority’s website or in person at the local tax office. The process may require submission of supporting documents, such as proof of residence and evidence of professional qualifications, as well as information about your foreign-sourced income.
4. Wait for approval: The approval process for the NHR programme may take a few months. If your application is successful, you will receive a certificate confirming your NHR status, which will be valid for ten years. During this time, you’ll need to maintain your tax residency in Portugal and comply with all applicable tax laws and reporting requirements.

If you’re new to Portugal, you should know that it’s a highly bureaucratic country and it is always much better to hire a Portuguese lawyer to take care of administrative stuff for you, unless you have a lot of time on your hands and you are a very patient person.

Advantages of the NHR Programme

The NHR programme offers several advantages for those considering moving to Portugal:

1. Reduced income tax rate: As mentioned earlier, the 20% flat rate on professional income earned in Portugal is significantly lower than the standard progressive rates, which can be as high as 48%. This reduced tax rate can lead to substantial savings for qualifying individuals.
2. Tax exemptions on foreign-sourced income: The NHR programme’s tax exemptions on various types of foreign-sourced income, such as pensions, dividends, interest, and royalties, can be particularly advantageous for retirees and investors with substantial income from abroad. These exemptions can help minimize your overall tax liability and protect your assets.
3. No wealth tax: Portugal does not impose a wealth tax, making it an attractive destination for high-net-worth individuals looking to protect their assets.
4. No inheritance tax for close relatives: While Portugal does have inheritance and gift taxes, close relatives, such as spouses, children, and parents, are exempt from these taxes. This can provide peace of mind and financial security for your family.
5. Double tax treaties: Portugal has established double tax treaties with numerous countries, which can help prevent double taxation on your income and ensure you’re taxed only once on the same income. These treaties can help simplify your tax situation and reduce your overall tax burden.
6. Attractive lifestyle and climate: In addition to the tax benefits, Portugal offers a high quality of life, with a warm climate, beautiful landscapes, rich culture, and excellent healthcare and education systems. The country’s safety, friendly locals, and relatively low cost of living further add to its appeal as a relocation destination.
7. Low property taxes: Portugal has relatively low property taxes compared to many other countries. There are two main property taxes: the Municipal Property Tax (IMI) and the Property Transfer Tax (IMT). The IMI is an annual tax based on the property’s assessed value and varies between 0.3% and 0.45%, depending on the municipality. The IMT is a one-time tax paid when purchasing a property, with rates varying depending on the property’s value and type. These comparatively low property tax rates can be appealing to those looking to invest in Portuguese real estate or move to the country under the NHR programme.

Disadvantages and Considerations of the NHR Programme

While the NHR programme has numerous advantages, there are also some considerations and potential drawbacks to keep in mind:

1. Limited duration: The NHR status is valid for a maximum of ten years. After this period, you will be subject to the standard Portuguese tax regime, which might be less favorable. It’s important to plan for the long term and consider the potential tax implications once your NHR status expires.
2. Potential changes in legislation: Tax laws and regulations are subject to change, and there is no guarantee that the NHR programme will remain unchanged throughout its ten-year duration. The general principle however is that once you are in the programme your conditions will remain unchanged during the 10-year period.
3. Compliance with reporting requirements: As an NHR, you are required to submit annual tax returns in Portugal, even if your foreign-sourced income is exempt from taxation. This can be time-consuming and may require the assistance of a tax professional. You may also need to continue filing tax returns in your home country, depending on its tax residency rules.
4. Social security contributions: While the NHR programme offers reduced income tax rates, you may still be required to pay social security contributions in Portugal, which can be substantial depending on your income. It’s essential to factor in these contributions when evaluating the overall financial benefits of the NHR programme.
5. Exit strategy: Before moving to Portugal, it’s essential to consider your exit strategy, as moving back to your home country or to another jurisdiction after benefiting from the NHR programme may have tax implications. Consulting with a tax professional can help you plan for potential scenarios and ensure a smooth transition when your NHR status expires or if you choose to leave Portugal.

Is the NHR Programme Here to Stay?

The long-term prospects of the NHR programme depend on various factors, including the evolution of Portugal’s economic, political, and fiscal landscape, as well as changes in international taxation standards and practices. As of now, the NHR programme has been successful in attracting individuals with high-value-added professional activities, retirees, and investors to Portugal, contributing to the country’s economic growth and development.

Keep the following points in mind when considering the long-term prospects of the NHR programme:

1. Legislative changes: Tax laws and regulations, including those governing the NHR programme, may change over time. Changes may occur due to shifts in government priorities, changes in the political climate, or in response to international pressure to adopt new tax standards. It’s essential to stay informed about any legislative changes and consult with a tax professional to ensure you’re prepared for potential alterations to the NHR programme.
2. International tax cooperation and transparency: In recent years, there has been a global push towards increased tax transparency and cooperation between countries to combat tax evasion and avoidance. This trend could potentially impact the NHR programme, as international tax standards evolve and countries may be required to share more information about their tax residents.
3. Portugal’s economic situation: The long-term success of the NHR programme may also be influenced by the overall economic situation in Portugal. For example, if the country experiences a downturn or faces fiscal challenges, the government may decide to revise the NHR programme or introduce new tax measures to boost revenue.
4. Public opinion and perception: The NHR programme may be subject to scrutiny and criticism, as some argue that it provides preferential treatment to certain individuals and may contribute to income inequality. Public opinion and political pressure could lead to changes in the programme or its eventual discontinuation.

While there will always be a certain level of uncertainty around such programmes, the programme has been in operation since 2009, so I wouldn’t be so concerned about it disappearing from one year to the next.

Is the NHR Also Good for Non-Europeans?

While the programme’s primary target audience is European citizens, the favorable tax regime and Portugal’s attractive lifestyle have made it appealing to people from various non-European countries as well.

I would particularly point out the big influx of people from the USA, especially from the West Coast. My understanding, based on many chats with immigrants from the US, is that Portugal and the NHR programme offer them a chance to reset their lifestyle when compared to the US. I would single out a few issues these people see in their home country:

• Political polarization
• Woke culture, especially in California
• Unhealthy lifestyle
• Lack of exposure to other cultures

If you take all that and in addition keep in mind the low-tax benefits of Portugal, and the climate similarity of Portugal to the West Coast of the USA, it’s easy to see why it becomes such an attractive proposition.

Here are the main factors that make the NHR programme appealing to Americans:

1. Tax benefits: The NHR programme offers a 20% flat rate on professional income earned in Portugal and tax exemptions on certain types of foreign-sourced income, such as pensions, dividends, interest, and royalties. These tax benefits can help Americans optimize their tax situation and potentially lower their overall tax burden.
2. Double taxation treaty: Portugal and the United States have a double taxation treaty in place, which helps prevent American citizens from being taxed twice on the same income. This treaty can simplify tax situations for Americans living in Portugal and ensure they are not subject to double taxation.
3. Visa options: Americans can apply for various visa options, such as the D7 passive income visa, which allows individuals with sufficient income from sources like pensions, rental income, or investments to reside in Portugal. The Golden Visa programme is another option for American investors who make qualifying investments in Portuguese real estate or meet other investment criteria.
4. Lifestyle: Portugal offers a high quality of life, with a warm climate, beautiful landscapes, rich culture, excellent healthcare and education systems, and a relatively low cost of living. The country’s safety, friendly locals, and English-speaking population make it an attractive destination for Americans looking to relocate.

However, there are also some unique challenges that Americans must consider when relocating to Portugal and benefiting from the NHR programme:

1. U.S. tax obligations: As a U.S. citizen, you are required to file an annual tax return with the Internal Revenue Service (IRS) and report your worldwide income, regardless of where you live. While the double taxation treaty and the Foreign Earned Income Exclusion can help minimize double taxation, Americans benefiting from the NHR programme must still comply with U.S. tax laws and reporting requirements.
2. Foreign Bank Account Reporting (FBAR): U.S. citizens living in Portugal may also need to file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Department of the Treasury if they have one or more foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year.
3. Foreign Account Tax Compliance Act (FATCA): U.S. citizens residing in Portugal are also subject to the Foreign Account Tax Compliance Act (FATCA), which requires them to report their foreign financial assets on Form 8938 if the total value exceeds certain thresholds.

Given these unique challenges, it is crucial for American citizens considering the NHR programme to consult with tax professionals experienced in both U.S. and Portuguese tax laws to ensure compliance and make the most of the available tax benefits.

Madeira – A Special Economic Zone

The International Business Centre of Madeira (IBCM) is a special economic zone established by the Portuguese government to promote economic development on the island of Madeira. The IBCM offers one of the most favorable tax regimes in Europe for companies and individuals, attracting both foreign and domestic investment. The main benefits provided by the IBCM are as follows:

1. Reduced corporate tax rates: Companies licensed to operate within the IBCM can benefit from a reduced corporate tax rate of 5% on their taxable income, which is significantly lower than the standard corporate tax rate in Portugal (currently 21%). This reduced rate applies until December 31, 2027, under the current legal framework.
2. Exemption from withholding taxes: Dividends, interest, and royalties paid by IBCM-licensed companies to non-residents are exempt from withholding taxes in Portugal. This exemption also applies to payments made between IBCM-licensed companies.
3. Exemption from property transfer tax (IMT) and stamp duty: Companies licensed to operate in the IBCM are exempt from property transfer tax (IMT) and stamp duty on the acquisition of real estate for their business activities within the IBCM.
4. Exemption from municipal property tax (IMI): IBCM-licensed companies are exempt from the annual municipal property tax (IMI) on real estate used for their business activities within the IBCM.
5. Reduced social security contributions: Employees working for IBCM-licensed companies benefit from a reduced social security contribution rate of 7.5% on their gross remuneration, compared to the standard employee contribution rate of 11%.
6. Access to Portugal’s extensive double tax treaty network: Companies operating within the IBCM can benefit from Portugal’s extensive network of double tax treaties, which can help prevent double taxation and facilitate cross-border transactions.
7. EU and Madeira Free Trade Zone benefits: Madeira is part of the European Union, and companies operating in the IBCM can benefit from the EU’s single market and free movement of goods, services, capital, and people. Additionally, the Madeira Free Trade Zone offers customs exemptions and benefits for companies engaged in international trade.

The IBCM’s favorable tax regime is subject to specific conditions and requirements, including substance requirements, minimum investment thresholds, and job creation targets. If you’re interested in taking advantage of the IBCM’s tax benefits you should consult with a tax lawyer to make sure this is a feasible option for you.

Criticisms of the NHR Programme and Changes Over Time

The NHR programme has faced criticisms and pressure to change from various quarters. Some of the main concerns and criticisms include:

1. Tax fairness and income inequality: Critics argue that the NHR programme benefits wealthy individuals, providing them with preferential tax treatment and contributing to income inequality. There is a concern that the programme may disproportionately benefit high-income individuals and foreign investors while leaving the general population to bear a larger share of the tax burden.
2. Potential for tax evasion: Some critics argue that the NHR programme could be used as a tool for tax evasion or aggressive tax planning by individuals seeking to exploit the tax exemptions and reduced tax rates. This concern is heightened by the global push for increased tax transparency and cooperation between countries to combat tax evasion and avoidance.
3. Brain drain and competition: Another criticism is that the NHR programme may contribute to a “brain drain” in other countries by attracting skilled professionals and wealthy individuals to Portugal. The programme’s benefits can create a competitive environment where countries try to offer more attractive tax regimes to lure talent and investment, potentially creating a race to the bottom.
4. Loss of potential tax revenue: Some argue that the NHR programme may lead to a loss of potential tax revenue for the Portuguese government, as individuals and businesses benefiting from the programme pay lower tax rates or are exempt from certain taxes.

In response to these criticisms and pressures, there have been some changes to the NHR programme over time, such as updating the list of qualifying high-value-added activities and introducing a minimum tax on foreign pension income. The latter was mainly due to pressure from Nordic countries who saw a significant number of their pensioners move to Portugal to avoid paying any tax back in their home country and enjoy a better lifestyle.

Is the NHR for You?

The Portuguese NHR programme offers a range of tax benefits for individuals considering moving to the country, including reduced income tax rates and exemptions on certain types of foreign-sourced income.

I hope that this article has given you a good overview of how the NHR programme works. However, to understand your eligibility, the application process, and the potential implications of becoming a Non-Habitual Resident in Portugal, the next step is definitely that of contacting a competent Portuguese lawyer who can guide you further.

Malta, a small Mediterranean island nation, has become an attractive destination for expats, entrepreneurs, and digital nomads due to its pleasant climate, rich history, and business-friendly environment.

It also happens to be the country where I was born and raised, although I left in my mid-twenties due to several issues that have remained largely unresolved. While I left and am happily living elsewhere, I still consider the island country to be an interesting proposition for expats who want to make a tax optimization move and also experience a different lifestyle than what they are used to.

Malta has become well-known internationally for being a low-tax jurisdiction, although the Maltese themselves pay up to 35% in tax. The reason for the low-tax reputation is that there are a number of attractive programs for individuals and their families considering a move to Malta.

Let’s do a quick rundown of the programs available.

The Global Residence Program

The Global Residence Program (GRP) is designed for non-EU nationals who want to establish their tax residence in Malta. This scheme provides a flat tax rate of 15% on foreign-sourced income remitted to Malta, with a minimum annual tax liability of €15,000. The program is open to individuals who own or rent property in Malta and are not employed in Malta. The program also allows for the tax-free importation of personal belongings and vehicles. In addition, the Malta Global Residence Programme can also be combined with the 6/7 tax refund scheme.

The Malta Retirement Program

The Malta Retirement Program (MRP) is designed specifically for retirees who are looking to spend their retirement years in Malta. It offers attractive tax benefits to individuals who are over 55 years of age, have a stable income from outside Malta, and who are able to meet a minimum annual income requirement. Successful applicants are granted a special tax status that limits their liability to tax only on income received in Malta and income remitted to Malta, with a minimum tax payable of €7,500 per year.

The Residence Program

The Residence Program offers non-EU/EEA/Swiss citizens the opportunity to obtain a Maltese residence permit. Successful applicants are granted the right to live and work in Malta, as well as travel freely within the Schengen Area. The program requires applicants to make a financial contribution to the Maltese government, invest in property or rent a property, and meet other eligibility requirements.

The scheme provides a flat tax rate of 15% on foreign-sourced income remitted to Malta, with a minimum annual tax liability of €15,000. The program is open to individuals who own or rent property in Malta and are not employed in Malta. The program also allows for the tax-free importation of personal belongings and vehicles.

The Highly Qualified Persons Program

The Highly Qualified Persons Program (HQPP) is designed for individuals who hold senior positions in eligible companies in Malta’s financial services, aviation, and gaming sectors. The scheme provides a flat tax rate of 15% on qualifying income, including employment income, fringe benefits, and director’s fees. The program is open to individuals who earn a minimum gross income of €75,000 per annum and have a relevant employment contract.

The Malta Individual Investor Program

The Malta Individual Investor Program (MIIP) is designed for high-net-worth individuals who are interested in obtaining Maltese citizenship. Successful applicants gain citizenship, as well as access to Malta’s tax-efficient environment.

The Malta Individual Investor Program (MIIP) can be combined with the 6/7 tax refund scheme to maximize the tax benefits for the individual. The 6/7 tax refund scheme allows individuals who are not domiciled in Malta to pay a flat rate of tax on foreign-sourced income remitted to Malta, with the possibility of obtaining a tax refund of up to 30% on that income.

To qualify for the 6/7 tax refund scheme, individuals must meet certain criteria, such as having a minimum taxable income of €35,000 and not having been resident in Malta for five out of the past six years. The MIIP requires a significant investment in Malta, such as a minimum investment of €650,000 in government-approved financial instruments, a €150,000 donation to a Maltese philanthropic organization, and the purchase or rental of a property in Malta.

By combining the two programs, individuals can benefit from the favorable tax regime under the 6/7 tax refund scheme and also obtain Maltese citizenship and the associated benefits under the MIIP. However, it is important to note that the MIIP is subject to strict due diligence procedures to ensure the suitability of the applicant and to prevent any potential abuse of the program.

Malta Startup Visa Program

The Malta Startup Visa Programme is aimed at non-EU/EEA/Swiss entrepreneurs who want to establish their startup in Malta. This program provides fast-track visa processing and access to a supportive ecosystem of mentors, investors, and other resources. The 6/7 tax refund scheme can also be applied to eligible startup companies that meet certain conditions, such as having at least one director or employee residing and paying taxes in Malta.

Digital Nomad Visa

In 2021, Malta introduced a Digital Nomad Residence Permit. This allows remote workers to stay in Malta for up to one year while working for a company or clients based outside of Malta. To be eligible for the permit, applicants must earn at least €30,000 annually and provide proof of income, as well as have health insurance and a clean criminal record. The permit also allows for dependents to accompany the applicant. The program is aimed at attracting remote workers to Malta and encouraging them to spend money on the island while working remotely.

Negative Perceptions of the Programs

There have been reports of some abuses of these programs, particularly the Malta Residence and Visa Program. Critics have argued that the program has been used by wealthy individuals as a means to buy residency, with some dubbing it a “golden visa” scheme.

Additionally, there have been concerns about the impact of such programs on the local property market. Critics have argued that the influx of foreign buyers has driven up property prices, making it harder for locals to find affordable housing.

Moreover, some people have expressed concern that these programs may be used as a means for tax evasion. While the programs themselves are legitimate and legal, there have been reports of individuals using them to hide assets or evade taxes in their home countries.

Negative perceptions about these programs are also fueled by the fact that they are often associated with the wealthy elite. Some people view these programs as a way for the rich to avoid paying their fair share of taxes and to live a privileged lifestyle while ordinary people struggle to make ends meet.

These criticisms are not necessarily reflective of the programs themselves, but rather the potential for abuse and misuse by some individuals. As with any program or policy, there will always be those who seek to take advantage of it for their own gain.

Moving to Malta – What to Consider

If you’re considering setting up in Malta, this guide will provide you with the essential information to get started.

Residency and Visa Requirements

To set up in Malta, first determine the type of visa or residency permit you require. EU, EEA, and Swiss nationals can live and work in Malta without a visa. However, if you are a non-EU/EEA/Swiss citizen, you may need to apply for a visa or a residence permit, depending on your plans and the duration of your stay. You can find more information on the Maltese Identity Malta Agency website.

Registering a Business

Malta offers a business-friendly environment with various types of legal entities to choose from, such as a limited liability company (LLC), partnership, or sole proprietorship. You will need to register your business with the Malta Business Registry and obtain a tax identification number. Additionally, you may need to apply for specific licenses or permits, depending on your industry.

In my view, Malta remains one of the top places in Europe to register your business. This applies especially to internet-based businesses in particular. You can read my article about setting up companies in Malta for more information.

Banking

Malta has a number of solid banks, although they have become notoriously strict and demanding when opening new accounts. Depending on your situation, you might find that opening a bank account at a Maltese bank is an unnecessarily painful process. If that’s the case, I would recommend using an online bank like Revolut or Wise instead. You can also read the article I wrote on opening bank accounts in Malta.

In fact, I would recommend opening accounts with those two online banks even if you do manage to open a Maltese bank account. It is much easier to transfer money between friends and operate multiple currencies using Revolut and Wise than any Maltese bank.

Taxation

Malta has a progressive income tax system, and tax rates range from 0% to 35%. The country also has an extensive network of double taxation treaties with numerous countries to avoid double taxation. VAT in Malta is set at 18% for most goods and services. It’s essential to understand the tax implications for your business and personal income, so consulting with a local accountant is recommended.

Of course, Malta is also known as a place where expats move to in order to obtain advantageous tax treatment. If you’re interested in exploring that option, I suggest you have a consultation with a Maltese lawyer to see what would work in your situation.

Cost of Living

Malta’s cost of living is generally considered to be moderate compared to other European countries. The cost of food, transportation, and utilities is relatively low, while housing costs can vary depending on the location and size of the property. It’s also important to note that prices for certain goods and services may be higher than in other EU countries due to Malta’s remote location and limited market size.

Finding a Place to Live

Malta offers various types of accommodations, from apartments to traditional townhouses and villas. Popular areas for expats include Sliema, St. Julian’s, and Valletta. You can search for rental properties on local websites or work with a real estate agent to find a suitable place to live.

In general, expats can expect to pay around €700-€1,500 per month for a one-bedroom apartment in a central area of Malta. However, prices may be higher in popular expat areas like Sliema and St. Julian’s.

Healthcare

Malta has a high-quality public healthcare system that is free for residents, including EU citizens. Private healthcare is also available, and many expats opt for private health insurance to access a broader range of services and shorter waiting times.

Climate

Malta enjoys a Mediterranean climate, with hot and dry summers and mild winters. The island receives an average of 300 days of sunshine per year, making it an ideal destination for those seeking warm weather year-round. However, summers can be very hot and humid, with temperatures reaching over 30°C. Winters are mild but can be rainy and windy. Overall, Malta’s climate is one of its biggest draws for expats and tourists alike.

Culture and Lifestyle

Malta has a rich cultural heritage, with influences from its Phoenician, Roman, Arab, and British history. The country is known for its stunning architecture, delicious cuisine, and vibrant festivals, such as the Carnival in February and the Isle of MTV music festival in June. Expats can enjoy a variety of activities in Malta, including swimming, hiking, and exploring the island’s historical sites. The island also has a thriving nightlife scene, particularly in areas like St. Julian’s and Paceville.

Networking and Integration

Joining local expat groups and attending networking events can help you connect with like-minded individuals and ease your transition to life in Malta. There are various social and professional networking groups and platforms available to help you establish connections within your industry and the local community.

Safety

Malta is considered a safe country, with low levels of crime and violence. The country has a well-trained police force and a low incidence of terrorism. However, expats should still take precautions to protect their personal safety, such as avoiding isolated areas at night and keeping valuables secure.

Work and Business Environment

Malta has a growing economy, with a focus on financial services, gaming, and tourism. The country has a business-friendly environment, with low corporate tax rates and various incentives

Language

Malta has two official languages, Maltese and English. English is widely spoken throughout the country, with most official documents and signs being in English. This makes it an attractive destination for English-speaking expats and businesses. Additionally, many Maltese people speak other languages, such as Italian and French, due to the country’s close proximity to these countries and its history of colonization.

Education

Malta’s education system is modeled after the British system, with schools offering primary, secondary, and tertiary education. There are a variety of schools available, including public, private, and international schools. English is the main language of instruction in most schools, with Maltese also taught as a second language. The University of Malta is the country’s main university, offering undergraduate and postgraduate programs in a range of fields.

In my opinion, the level of education in Malta is good, but not on par with the best international options. The biggest benefit of educating your children in Malta is that you get free schooling in English, which is quite unique internationally if you go outside the big English-speaking nations.

On the other hand, if you’re really after giving the best education to your kids, you will find much better private schooling options abroad. I can personally compare it with the options available in Spain, and to me, there is no doubt that the private schools in Spain, particularly those adopting the American model, are far superior to any option in Malta.

Conclusion

Setting up in Malta can be an exciting and rewarding experience. By understanding the legal requirements, finding suitable accommodation, and building a network, you’ll be well on your way to enjoying all that this Mediterranean gem has to offer.

It can also be a very frustrating experience if you don’t do your research properly and go in with the wrong expectations. Most expats are not prepared for what life on a crowded tiny island, especially if they come from big countries. Making this move can certainly provide some psychological challenges in the adaptation period, so if I had one piece of advice, it would be to find the right people to help you out, and try to make friends as early as possible. A few visits before you make a definite move are also essential, in my opinion.

If you need more specific information, feel free to ask, and I would be happy to help. I can also connect you to my trusted lawyers and other professionals in Malta.