01 August 08

Property

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THIS MONTH: TAX ISSUES

When looking to buy abroad, tax is a major factor to consider. It varies a lot between countries and there are savings to be made, says Shane McGinley

In this world nothing is certain but death and taxes,” the American politician, scientist and inventor Benjamin Franklin once said. With the ever-growing number of markets available, it is important to look at the taxes in a country as yet another element of the overall package.

You must consider issues such as the capital gains tax, due when you plan to sell the property, if it’s for investment, the taxes due on the income you earn for the property, and any taxes due on the purchase of the property.

The hardest thing in the world to understand is the income tax,” Albert Einstein once said, and he wasn’t exactly short of a few brain cells. Most countries, especially in Europe, have pre-existing double-taxation agreements, but to make the comparison easier I am only going to compare the local taxes in the country where the property is located. If a buyer is not resident in the country where the property is located they must also declare any profi t from the rental or sale of the property with the tax authority where they are resident and pay any additional taxes due.

If you want to settle in a tax haven, places to look at include Andorra, Liechtenstein and Monaco. Yet at €36,617 on average per m2, Monaco is the most expensive place to buy property in Europe. At €6,333 per m2, Liechtenstein is the seventh most expensive country in Europe, but in order to buy here you must fi rst be a resident in the country for three years. While it is cheaper to buy in Andorra, foreigners must gain permission to purchase, and cannot buy more than one apartment or more than 1,000m2. Rental income is taxed at about 3%, there are no capital gains taxes, ony a small property acquisition tax and no inheritance tax

If you decide to move permanently to your European home abroad it might be worth knowing that Scandinavian countries such as Denmark, Finland, Norway and Sweden have high taxes, but Turkey and Poland top the chart, taking about 30% of your earnings in taxes. Ireland, Luxembourg, Slovakia, Portugal, the Czech Republic and Hungary take the least tax.

For renting your property out, Switzerland is by far the most costly. Based on an income of about €1,500 a month, 49% of it will go on taxes, followed by Russia (30%), Norway (27%), Spain (24%), Finland (23.8%) and Malta (17.8%). Yet in Cyprus, Latvia and the UK you pay 0%.

For capital gains tax, some of the most costly countries are Denmark and the UK, followed by Finland and Malta. Comparatively, in Poland, Switzerland, Germany, Slovakia, Italy, Latvia, Romania and Turkey, you will most likely not have to pay any tax. Again, any sale must be declared in your country of residence.

FOR MORE DETAILS, VISIT WWW.PTIRETURNS.COM ANDWWW.GLOBALPROPERTYGUIDE.COM