Costs for the wealthy leaving the country are rising - Many European countries are imposing measures that prevent the departure of capital
A new reality is weighing on Europe's wealthy. According to Bloomberg, many of them are trying to flee high-tax countries for tax havens like Monaco, Dubai and Switzerland. However, many governments are now demanding their share before they'll let them leave.
In Europe, the economic battle is quieter but no less intense. Countries like Germany, Norway and Belgium are imposing exit taxes on citizens leaving the country. These taxes apply to capital gains, even if the assets remain unsold. They target people with large stakes or significant business interests. Germany’s threshold is €500,000 in a company or at least 1% ownership. Norway taxes unrealized gains at rates of up to 38%. Exit taxes are not new, but they have been expanding rapidly. Countries are feeling the fiscal pressure from COVID-era spending and sluggish growth.
Raising direct income taxes is politically complicated. However, exit taxes target a smaller, wealthier population. They are presented as fair compensation for public services that have been used in the past. However, many argue that they are burdensome and difficult to collect.
As for tax havens, they attract newcomers, but their doors are not fully open. Switzerland offers the Forfait tax system, a flat tax based on expenses. Wealthy foreigners pay about 429,100 Swiss francs or more, depending on their lifestyle. However, the political atmosphere is changing here too. In November, Switzerland will vote on a proposal for a 50% inheritance tax.
By contrast, Italy has become more welcoming. Its flat tax on foreign income was recently doubled to 200,000 euros a year. That has attracted nearly 4,500 wealthy individuals in eight years. Milan, in particular, is attracting those seeking a similar energy to London but without the tax burden. However, only those who have not been Italian residents for nine out of the last ten years can qualify.
Tax havens still lure Europe’s wealthy, but the cost of leaving has risen sharply. Exit taxes have transformed the way countries manage capital flight. Governments now require payments even before assets are sold. Italy and Switzerland attract new residents with flat-rate tax regimes, but their futures remain uncertain. Britain is at a crossroads as more wealthy individuals flee its shores. For Europe’s wealthy, the choice is clear: stay and pay, or leave and pay even more.
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