How to Legally Pay Less Tax in Europe Through Strategic Residency

Understanding How Residency Shapes Your Tax Obligations

In Europe, where you are tax resident determines which country has the right to tax your worldwide income. Tax residency is generally defined by where you spend most of your time (typically more than 183 days per year), where your primary home is located, and where your vital interests lie — such as family, business, and personal ties.

When you happen to meet residency criteria in more than one country, Double Taxation Treaties (DTTs) come into play. These treaties are signed between countries to prevent the same income from being taxed twice. They typically allocate taxing rights between the two countries and ensure that one of them either exempts the income or provides a credit for tax already paid abroad.

By combining the right residency program, fiscal regime, and treaty protection, it’s possible to legally and significantly reduce your global tax burden while maintaining compliance.

Italy’s Resident Non-Domiciled Flat Tax Regime

Italy offers one of Europe’s most appealing residency tax regimes for high-net-worth individuals: the Resident Non-Domiciled Flat Tax Regime, introduced under Article 24-bis of the Italian Tax Code.

This regime allows qualifying individuals to pay a flat annual tax of €200,000 on all foreign-sourced income, regardless of the amount earned. Family members can be added for an additional €25,000 per person. The flat tax is payable once per year and replaces the need to declare or pay tax on foreign income streams such as dividends, interest, capital gains, and rental income from abroad.

To qualify, the applicant must not have been a tax resident in Italy for at least nine of the previous ten years before applying. The benefits can last for up to 15 years, providing a long-term, predictable tax environment.

Italian-sourced income — such as income earned from work or business within Italy — remains taxable under standard rates. However, foreign income is entirely covered by the flat tax.

This regime is particularly attractive for entrepreneurs, investors, and globally mobile individuals with significant foreign assets who want to enjoy Italy’s lifestyle without a complex worldwide tax exposure.

Portugal’s New “NHR 2.0” — IFICI (Incentive for Scientific Research and Innovation)

In 2024, Portugal replaced its popular Non-Habitual Residency (NHR) regime with a more focused successor known as the Incentive for Scientific Research and Innovation (IFICI) — often referred to as “NHR 2.0.”

This new framework aims to attract high-value professionals, entrepreneurs, and researchers who contribute directly to Portugal’s economy and innovation ecosystem.

Under IFICI, eligible individuals benefit from:

• A flat 20% Personal Income Tax (PIT) rate on Portuguese employment and self-employment income related to qualifying activities.

• Exemption or relief on certain types of foreign-sourced income, depending on Portugal’s double-tax treaties and local anti-avoidance rules.

• 10 consecutive years of preferential tax treatment.

To qualify, applicants must not have been tax residents in Portugal during the previous five years, and they must work in one of the eligible high-value sectors such as technology, scientific research, higher education, renewable energy, or advanced manufacturing.

Unlike the previous NHR regime, the new system is narrower in scope — targeting genuine professionals who bring economic value to Portugal, rather than anyone with passive income. However, for qualifying individuals, it remains one of Europe’s most compelling and transparent tax frameworks.

Portugal’s IRS Jovem — Supporting the Next Generation

For young professionals, Portugal’s IRS Jovem regime provides another way to enjoy reduced taxes while establishing a life and career in Europe. It is designed to reward individuals entering the workforce and help retain talent in Portugal.

This regime grants a progressive exemption from Portuguese income tax over a period of up to 10 years, depending on age and circumstances. The relief begins with 100% exemption in the first year, gradually tapering down to 25% exemption by year ten.

IRS Jovem applies to both employment and self-employment income and is available to individuals up to the age of 35, provided they meet the basic conditions of new economic activity and tax residency in Portugal.

It’s an ideal entry point for younger earners or digital professionals who want to live in Portugal while benefiting from reduced taxes during the early stages of their career.

Building a Strategic Tax Residency Plan

The art of legally reducing tax in Europe lies in matching your income profile, residency intentions, and lifestyle priorities to the right jurisdiction and regime.

1. Establish Clear Tax Residency Ensure you understand how your country of origin defines residency, and use double-tax treaties to avoid overlapping claims.

2. Match Income Type to Regime

3. Leverage Double Tax Treaties If you have foreign income, check which country holds the taxing rights and how relief or exemption applies. Portugal and Italy both have extensive treaty networks that can prevent double taxation and, in some cases, completely exempt foreign income.

4. Maintain Compliance and Documentation Residency-based benefits rely on accurate registration, transparent reporting, and annual filings. Small administrative oversights can invalidate the regime’s advantages, so professional tax guidance is highly recommended.

Tax efficiency in Europe is no longer about complex offshore structures or aggressive planning — it’s about choosing the right residency and aligning your lifestyle with a country’s official fiscal incentives.

Italy’s Resident Non-Domiciled Flat Tax offers simplicity and certainty for global earners. Portugal’s IFICI (NHR 2.0) rewards innovation and skilled work. And IRS Jovem helps young professionals build their financial foundation in a low-tax environment.

By combining these with the protections offered under Europe’s extensive Double Taxation Treaties, individuals can achieve genuine, compliant tax optimisation — enjoying the best of Europe while keeping their finances structured, transparent, and efficient.