Tax Havens in Europe

Tax havens have been known to greatly reduce and eliminate taxes that would have otherwise been due by domestic tax authorities if not for their placement in offshore accounts. Tax avoidance has diverted up to $32 trillion of private wealth into offshore safe havens around the world.

This article analyzes the top 10 tax havens in Europe. The continent is home to many tax havens that offer advantageous environments for capital gains taxes, income taxes, and corporate taxes. These regions have attracted large companies along with wealthy private investors who seek refuge from taxation policies in their home countries.

Key Takeaways

  • Europe is home to many tax havens that provide favorable environments for taxation on capital gains, income, and corporations.
  • England, Germany, and Ireland are among the top tax havens on the continent.
  • Switzerland's financial secrecy has made it one of the world's top places to store cash.
  • Foreign companies can get favorable treatment as Danish holding companies while Luxembourg doesn't charge capital gains taxes on certain stocks.

1. England

England is considered the epicenter of the remainder of the world's tax haven systems. Foundations and trusts are typical tax haven vehicles foreigners use to offer a protective tax-free or tax-reduced wrapper around assets. The country is particularly popular with foreign billionaires who benefit from a lack of income or capital gains taxes on investments held outside of the country.

London is Europe's tax haven capital for non-British individuals. The city's well-established banking systems are trusted and used by foreigners from nearly every country in the world. Small and large companies benefit from a relatively low 19% corporate tax throughout 2021.

British territories are also popular tax havens, including the British Virgin Islands and the Cayman Islands. Neither overseas territory charges corporate taxes or capital gains taxes as of 2020. Individuals aren't taxed in the British Virgin Islands unless they are employed in the territory while the Cayman Islands doesn't charge any individual income taxes. Neither territory has a withholding tax.

2. Germany

Foreign investors are freed from the burden of taxes on interest in Germany. The country retains the privacy of account holders. For non-resident corporations, foreign income is exempt from taxation whether it is in the form of dividends from foreign subsidiaries or income earned in foreign branches.

Corporations benefit from Germany's tax environment as only 5% of dividends and capital gains have taxes levied against them. These classes of income are considered nondeductible operating expenditures according to German accounting standards.

3. Ireland

People who claim to live in Ireland but are not residents and hold a residence elsewhere are able to use its attractive tax environment. Ireland has a long history of offering low corporate tax rates to encourage foreign companies to relocate business on paper rather than physically.

Ireland is host to a business tax rate of 12.5%, and artists enjoy a tax-free income. The country has been host to quite a few shadow corporations attempting to take advantage of the low-tax environment.

Dublin is home to the International Financial Services Centre, a financial center that has served as a deregulated haven to both individuals and businesses. Foreign investment into the International Financial Services Centre weighed in at $2.7 trillion in 2014.

4. Jersey

Jersey receives funds from England as a mainstay in England's tax haven system. The crown dependency of Jersey operates under different financial transparency laws than most banking systems. It is notorious for banking secrecy procedures, as well as general secrecy in matters of government and justice.

The government charges no corporate taxes to companies foreign and domestic companies that are permanently established on the island. Financial companies are charged a flat 10% corporate tax rate while large corporate retailers and utility companies pay 20%. Jersey does not tax dividends or capital gains.

5. The Netherlands

Business taxes in the Netherlands are very low, as are taxes on interest and licensing income. The Netherlands attracted $84 billion in foreign direct investment in 2019, making it the largest recipient of FDI in Europe.

With more than half of the Fortune 500 companies operating at least one subsidiary in the country, the Netherlands appears to be the most popular tax haven for U.S. companies. The Netherlands has boomed in corporate headquarters and subsidiaries for its treatment of multinational taxes.

Tax exemptions called participation exemptions to remove the tax burdens from dividends and capital gains that are accrued outside of the country. Royalties and interest payments are also free from tax burdens, though the Netherlands will begin withholding tax for entities established in low-tax jurisdictions beginning in 2021.

6. Switzerland

Once a home for many anonymous banks that are no longer able to operate anonymously, Switzerland still serves as a popular tax haven, as the country adheres to secrecy in banking practices.

The efforts of U.S. tax evasion investigators have not bumped Switzerland from the list of popular European tax havens. Russia has also identified Switzerland as an offshore jurisdiction that refuses to share banking information on account holders.

The Financial Secrecy Index ranked Switzerland as the third tax haven in the world based on its banking secrecy procedures and the amount of its offshore business. Switzerland's enforcement of tax laws has been conspicuously absent. The country has a long history of hiding funds as it was the go-to hiding place for the upper class during the French Revolution.

In 2018, Switzerland agreed to provide information about bank accounts with members of the European Union (EU) and nine other countries, including Australia, Canada, Guernsey, Iceland, Isle of Man, Japan, Jersey, Norway, and South Korea.

7. Sweden

Sweden has disposed of a number of taxes including inheritance taxes and gift taxes. Insurance bonds called kapitalförsäkring serve as unique investment vehicles that may be used by Swedish residents and foreigners who live in Sweden. In 2012, Sweden began offering something called an investment savings account (ISK) to its citizens. Rather than being taxed on actual income, gains, and losses, the ISK imposes a standard revenue tax on estimated earnings. This means you pay taxes even if your account dropped in value, however you can also withdraw funds at any time tax-free.

Though Sweden has not traditionally been viewed as a tax haven in Europe, changes to its tax codes and the introduction of the kapitalförsäkring have helped modify the view of the country's potential as a tax haven for foreign investors.

8. Denmark

Tax havens in Denmark are able to operate due to low transparency in information exchanges between tax authorities and banks. The real owner of a corporation or a foundation can be difficult to distinguish in Denmark, as is the case with limited partnerships.

As of 1999, federal law was established to allow foreign entities to use the country as a jurisdiction for holding companies. Foreigners are allowed to hold 100% of shares in a Danish holding company and aren't subject to corporate taxes in this case.

Other benefits of these companies include:

  • Lack of restrictions for business activities
  • Ease of registration
  • Low requirement for minimum capital

9. Austria

Account-holders in Austria are granted privacy in exchange for their funds, and Austrian bank accounts are popular with Germans. Austria's bond market is popular with foreign investors. Stringent banking secrecy earned the country a ranking of 36 on the Financial Secrecy Index.

10. Luxembourg

German banks notoriously take advantage of Luxembourg's tax environment as the dividends of many companies are not taxed. Long-term capital gains on stocks are tax-exempt if a majority share is 10% or more is not held. By placing segments of business entities in Luxembourg, foreign corporations have been able to cut huge tax bills from their expenses.

Luxembourg has become so notable for its tax laws that much of the country's attractiveness for outside businesses are owed exclusively to these features, and Luxembourg's economy is partially built around the business gained from its tax structure.

The country may be put at risk financially if it is no longer attractive to outside businesses for these reasons. European policymakers have demanded the country alter its tax structure to encourage corporate and consumer tax revenue.