Wealthy Europeans looking to depart from their high-tax countries are facing some rather high-priced headwinds.
Affluent residents across the continent are now facing exit levies before they make the move to tax havens such as Monaco, Dubai, and Switzerland. This is a result of some nations’ efforts to slow down—or even halt—the departure of these ultrahigh-net-worth individuals, Bloomberg reported.
With the exit tax, countries are aiming to collect a portion of the profits that a person has generated while using that nation’s infrastructure to build their assets. The implementation has faced criticism, since individuals are required to pay levies on unsold assets. Even so, exit taxes have become more prevalent in the past year: Recovery from the Covid-19 pandemic, among other expenses for the public, and slower growth overall has left European governments searching for ways to increase funds, according to Bloomberg.
“A lot of countries are bringing in exit taxes,” David Lesperance, founder of wealth management company Lesperance & Associates, told Bloomberg. “Clients who have illiquid assets and mortgages are then hesitant to trigger [them] because they just don’t have the money to pay the bill.”
In particular, Germany, Norway, and Belgium have either increased their exit levies as of late or have considered doing so. The Scandinavian country can hit well-off residents with a tax of up to 38 percent on their unrealized capital gains. As for Germany, where the exit-tax system rose back in the 1960s, it hovers around 27 percent with its levies. It can affect those leaving the country who own 1 percent or more, of a company’s shares—or if they lay claim to around $581,000 (€500,000) of a brand’s equity. The exit taxes have certainly had an impact—in one instance, the owner of a German IT company kept his daughter out of his succession plans to avoid paying a high levy on the transferred assets, Bloomberg reported.
These aren’t the only countries where the UHNW are on the move, either. Last April, the U.K.’s removal of its over 200-year-old tax-break system for “non doms,” a nickname for the nation’s foreign residents, caused an exodus of ultra-wealthy individuals to leave the nation. Many of those folks have decided to settle down in Italy—specifically, in the financial hub of Milan—where they can pay a flat levy of $223,000 to avoid Italian taxes on earnings overseas, mirroring what was previously done in the United Kingdom. As a result of the U.K. tax upheaval and the UHNW migration, some have called for the government to create an exit tax on the country’s well-to-do residents before they take flight. For now, though, the nation had made no moves to do so, Bloomberg reported.
