Modern tax tourism

The years of the so-called tax tourism already belong to the past. However, this does not mean that this is a completely unusual phenomenon. Polish entrepreneurs are often looking for information on the possibility of doing business outside the country and the possible benefits of doing business.

Countries or territories with preferential tax regimes attract entrepreneurs primarily with low and sometimes even zero tax rates, tax exemptions and reductions, as well as limited bureaucracy.

Some use unfair tax practices, which combine with the lack of transparency of tax rules and limited cooperation and exchange of tax information between the so-called tax haven and other countries. On the other hand, it is sometimes worth paying attention to those who are not qualified as tax havens and offer certain preferences.

Countries applying harmful tax competition are widely known and included in official lists of both state and European. In addition to letters of tax havens, the Council of the European Union from 2017 regularly publishes a list of jurisdictions reluctant to cooperate for tax purposes. In the current list of 8 October 2024 I found it.

11 States: American Samoa, Anguilla, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad and Tobago, United States Virgin Islands and Vanuat[1]. The Minister of Finance (Article 23v(2) Personal Income Tax Act[2] and Article 11j(2) Corporate Income Tax Act[3]).

In the current lists[4] – among the non-listed EU Councils, include the Principality of Andorra, the Kingdom of Bahrain, the British Virgin Islands, the Commonwealth of Dominica, Grenada, Hong Kong, the Republic of Liberia, the Republic of Maldives, the Republic of Mauritius, the Principality of Monaco, the Republic of Seychelles.

However, the tax havens included in the lists of the Minister of Finance and the Council of the European Union are not exclusive interests for Polish entrepreneurs. On the map of the world, we will easily find places characterized by a more relative tax policy than the one established by the Polish legislature, where the conduct of business does not involve special restrictions and is fully legal.

Luxembourg

The Principality of Luxembourg, located in Western Europe, offers preferential tax conditions. Registration of the company is relatively simple (to a large extent it can be carried out electronically) and its cost of establishment is small (approx. 1,000 EUR).

For small and medium-sized enterprises, there is provision for start-up aid in the form of grants, tax reductions or interest-rate loans. Furthermore, Luxembourg tax law provides for many positive solutions for entrepreneurs, such as deferred taxation of capital gains or relief for bad debts.

A characteristic feature of the tax system of the Principality of Luxembourg is the multitude of tax thresholds. Enterprises whose annual income does not exceed 175,000 EUR are covered 15% CIT tax. The same rate applies to dividends. To enterprises exceeding 200,001 EUR a tax of 17% and the solidarity and municipal tax.

In this case, the effective total tax rate will be 24.94%. The amount of the property tax varies from 0.7% to 1% their values. Entrepreneurs are obliged to register as VAT payers, unless their activities are not subject to VAT. The basic rate of tax on goods and services is 17%, which is at the same time the lowest VAT rate in the EU.

The reduced rates apply, among others, to flower sales activities (8%), hairdressing services (8%), restaurant and catering services (3%), passenger transport (3%). In turn, postal and educational, cultural and sports services are exempt from VAT.

By far the most popular form of business is the Luxembourg limited liability company (société à respondsabilité limitée – SARL). Luxembourg's tax and economic system will certainly be conducive to entrepreneurs offering professional, commercial and craft services, as well as free trade.[5].

Ireland

Ireland's tax policy is characterised by a low corporate tax rate. In combination with simple bureaucracy, it provides convenient conditions for running a business. There are European headquarters for giants such as Meta Platforms (Facebook) or Apple.

Despite the tax changes that entered into force 1 January 2024, Small and medium-sized enterprises whose annual turnover does not exceed 750,000,000 EUR, will continue to benefit from a preferential CIT rate of 12.5%.

For companies registered to the end 2020 Ireland even offered a relief in the form of a three-year total income tax exemption for new entrepreneurs. Other traders whose annual turnover exceeds the tax threshold will be subject to income tax at the rate 15%.

Irish companies do not require minimum share capital and enough to establish them one Partner. The most popular form of conducting business is the equivalent of the Polish company z o.o.

– limited company, in particular because Polish residents are not entitled to Irish self-employment, which is the equivalent of Polish single-person business. Ireland is an attractive place for entrepreneurs with cross-border interests, due to the wide range of countries with which Ireland has concluded a double taxation agreement.

Irish law provides for many tax breaks, as well as low property taxes, the amount of which is determined by the local administration. On the other hand, there is an annual road tax, which currently depends on CO emissions[2] the vehicle concerned. The basic VAT rate is 23%.

For example, tourism, photography and hairdressing services, as well as certain catering services (13.5%). The need to register as a VAT taxable person covers only economic operators whose annual income exceeds 37,500 EUR[6].

Slovakia

High popularity, especially among Polish entrepreneurs, has gained its activity in the Czech Republic. Freelance activities are highly profitable there, due to the flat-rate operating costs introduced.

In practice this allows for the adoption of a tax base of 40% revenue, as well as simple accounting without excessive collection of documents[7]. However, it is worth noting another neighbour of Poland – Slovakia. This is a country whose tax policy is particularly beneficial for transport businesses.

In Slovakia, the entrepreneur will not pay tax on means of transport or excise duties on cars. As a result, the purchase of a car in Slovakia will be cheaper even by more than 40%. In contrast to Polish regulations, it is possible to deduct VAT on purchased vehicles.

Slovak legislation also does not provide for restrictions on the use of a business car for private purposes. VAT is at the level of 20%. Compared to the Polish tax system, Slovakia has limited formalism. Checks on the part of the tax office are much less frequent.[8].

Malta

It may also be a good choice to establish a business in Malta. Although the basic corporate tax rate is there 35%, This extended tax system of Malta can reduce the amount of effective tax even to 5%. The basic VAT rate is 18%. Some tourist services, such as pleasure boats (12%) whether tourist accommodation (7%).

Foreign entrepreneurs are in a privileged position, which makes the Maltese market extremely attractive for entrepreneurs outside the country. In recent years, the European Commission has committed Malta to a more thorough review of new tax residents and to introducing transfer pricing rules.

These measures were intended to prevent the illegal trading of money, which has been extremely easy in Malta so far. This does not alter the fact that Malta is still a highly attractive place to operate. The company in Malta is a good solution in particular for the new technologies sector (blockchain), finance and economic advice[9].

Singapore

Singapore is becoming increasingly popular outside European countries. This. one from the fastest growing financial centres in Asia. Its characteristic feature is the territorial tax system.

Only revenue generated in Singapore is subject to taxation, which means that Singapore's companies do not pay taxes on foreign profits, if the income has been taxed accordingly in the country of origin. The basic corporate tax rate is 17%, and the basic VAT rate is 8%.

The Singapore system provides many benefits and benefits, especially for new entrepreneurs – e.g. zero income tax by first three years of activity (up to a certain amount). There is no tax on capital gains or dividends. Singapore is a party to many double taxation agreements and has also concluded such an agreement with Poland.

The most popular sectors in Singapore are e-commerce, wholesale and retail trade, production and transport[10].

Estonia

Many entrepreneurs also benefit from Estonia's liberal tax policy. And although there are many advantages to doing business in this country, it should be borne in mind that from 1 January 2024 the basic VAT rate increased from 20% to 22%. Similarly, income tax on natural and legal persons 2025 increase from 20% to 22%. July 2024 A levy on the holding of motor vehicles is also established on the annual fee. In addition, the Estonian government plans further increases in tax on the so-called "defensive tax"[11].

In contrast to countries using harmful tax practices, the Principality of Luxembourg, Ireland, the Czech Republic and Slovakia, Malta, Singapore and Estonia offer legal tax optimization strategies. Bulgaria and Cyprus can also be mentioned among countries with preferential tax and economic policies.

In Romania, which is also considered a tax haven for some people, massive tax increases are expected in the near future. When planning a restructuring of activities, including in tax terms, it is worth taking care to carry out an in-depth analysis of specific activities from the point of view of local regulations.

The choice of place should also depend on the type of business performed or planned and the expected turnover.

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