Comparing taxes in France, Portugal, Spain and Italy for expats

When it comes to relocating abroad, understanding the tax implications in your chosen destination is crucial. Countries like France, Portugal, Spain, and Italy each have their own tax systems that affect property ownership, income, and pensions differently. For expats moving abroad, knowing these nuances can make a big difference in financial planning. In this article, we compare property taxes, income taxes, and specific tax treatments across these popular European destinations for expats.

Comparing Taxes in France, Portugal, Spain, and Italy for Expats

Property tax comparison

Property tax in France

In France, property owners pay two main taxes: the “taxe foncière” and the “taxe d’habitation“.

  • Taxe Foncière: This is a land tax that applies to all property owners. To define the tax amount accurately, the administration evaluates the “valeur locative cadastrale” of each residence. This cadastral rental value corresponds to an annual rent that the owner could expect if the property were rented out. Rates vary by municipality and are generally higher in urban areas.
  • Taxe d'Habitation: This tax applies to the occupant of the property, whether they are the owner or a tenant. Recent reforms have phased out the “taxe d'habitation” for most primary residences, but it still applies in some cases. Its amount depends on the characteristics of the occupied property (such as surface area, number of rooms, location) as well as the personal situation of the taxpayer (income level, number of household members, etc.)

Wealth Tax: High-value properties are subject to the “impôt sur la fortune immobilière” (IFI) if their net value exceeds 1.3 € million. This includes all real estate assets and rights held directly or indirectly as of January 1st, after deducting debts. This tax can significantly affect high-net-worth expats.

Property tax in Portugal

Portugal imposes an annual property tax called the “Imposto Municipal sobre Imóveis” (IMI). Rates typically range from 0.3% to 0.5% of the property's taxable value, depending on its location. Urban areas tend to have higher rates. Expats under the Non-Habitual Resident (NHR) regime may enjoy certain tax benefits, but property owners remain liable for IMI regardless of their residency status.

Property tax in Spain

Spain has an annual property tax known as the “Impuesto sobre Bienes Inmuebles” (IBI), calculated based on the cadastral value of the property. Municipalities set the rates, so amounts can vary widely depending on location.

Upcoming Changes: Spain is planning to introduce a tax of up to 100% on the value of properties bought by non-residents from countries outside the EU, such as the UK. In 2023, non-EU residents purchased 27,000 properties in Spain, many of which were bought for investment purposes rather than personal use, according to an economic forum in Madrid. Additionally, Spain is set to abolish its “golden visa” scheme, which provided expedited residency to buyers of properties worth 500,000 € or more. Expats should keep an eye on updates to these policies.

Wealth Tax: Spain imposes a wealth tax, known as “Impuesto sobre el Patrimonio”, on an individual’s net assets. This annual tax is calculated based on the value of worldwide assets for residents and Spanish-based assets for non-residents, with progressive rates ranging from 0.2% to 3.5%. Spanish tax residents living in the country for more than 183 days per year are taxed on their global assets, while non-residents are taxed only on assets within Spain. Post-Brexit, British citizens in Spain are considered non-EU residents, which affects exemptions and allowances.

Property tax in Italy

In Italy, property tax ‘Imposta Municipale sugli Immobili’ (IMU) is an annual obligation for second homes or properties that are not the owner's primary residence. The rate varies depending on the municipality, typically ranging from 0.4% to 0.8%. IMU is due by September 30th each year, and expats should plan accordingly. Certain areas may offer exemptions or reduced rates for specific types of properties. However, luxury properties tend to incur higher tax rates.

Income tax for expats per country

Income tax in France

France taxes its residents on their worldwide income using progressive rates ranging from 11% to 45%. For American retirees, France stands out as a particularly attractive destination because U.S. pensions are not taxed, thanks to the U.S.-France tax treaty. This agreement ensures that income such as Social Security benefits and private pensions from the U.S. are either exempt or taxed at reduced rates in France. Rental income, dividends, and other sources of earnings are subject to local tax rules, but credits can be applied to avoid double taxation. The U.K.-France treaty similarly prevents double taxation, allowing British expats to offset taxes paid in the U.K. against their French liabilities. For Canadians, pensions and income are taxed under provisions of the Canada-France tax treaty, which specifies tax rates and exemptions for various income types.

Income tax in Portugal

Portugal offers one of the most favorable tax systems for expats, primarily through its Non-Habitual Resident (NHR) regime. Under this system, foreign-sourced income such as pensions may be taxed at a flat rate of 10% or even be exempt entirely for a decade. However, rental income and other locally sourced earnings are taxed at progressive rates of up to 48%. Portugal has tax treaties in place with the U.S., Canada, and the U.K. to prevent double taxation. For instance, pensions from these countries may be taxed only in Portugal or only in the source country, depending on the treaty provisions. This makes Portugal an attractive option for retirees seeking to maximise their income.

Income tax in Spain

Spain taxes residents on their worldwide income at progressive rates ranging from 19% to 47%, depending on the region. The U.S.-Spain tax treaty, for example, ensures that American Social Security benefits are taxed only in the U.S., while other income may be subject to Spanish taxation. Rental income is taxed but allows deductions for maintenance and other expenses. British expats face similar provisions under the U.K.-Spain tax treaty, which helps avoid double taxation.

Income tax in Italy

Italy has a unique flat tax regime tailored for high-net-worth expats, allowing them to pay a fixed amount of 100,000 € annually on foreign-sourced income, irrespective of the total amount. This makes Italy particularly attractive for wealthy individuals. For others, income tax follows a progressive scale ranging from 23% to 43%. Rental income is taxable but includes allowable deductions. 

Special tax considerations

Pensions

France offers a significant advantage for American retirees, as U.S. pensions are not taxed, a benefit secured under the U.S.-France tax treaty. This agreement ensures that Social Security benefits and other U.S. pensions remain taxable only in the U.S. Other pensions, such as those from the U.K. or Canada, may be subject to French income tax depending on treaty provisions, with credits available to avoid double taxation.

Portugal’s Non-Habitual Resident (NHR) regime provides an attractive flat tax rate of 10% for foreign pensions, making it a popular destination for retirees. Tax treaties, such as those with the U.S. and U.K., further clarify taxation rules, often allocating pension taxation rights to Portugal for private pensions while exempting certain government pensions from local taxes.

Spain generally taxes pensions as regular income, with progressive rates ranging from 19% to 47%. However, tax treaties play a crucial role in reducing this burden. For example, under the U.S.-Spain tax treaty, Social Security benefits are taxed exclusively in the U.S., while private pensions are taxable in Spain. British expats benefit similarly under the U.K.-Spain tax treaty, which provides mechanisms to avoid double taxation on pensions.

Italy may tax foreign pensions under its progressive income tax system unless exemptions are granted through bilateral tax agreements. The U.S.-Italy tax treaty exempts U.S. government pensions and Social Security benefits from Italian taxation, taxing them exclusively in the U.S. Similarly, the U.K.-Italy tax treaty ensures that British government pensions are taxed in the U.K., while private pensions may fall under Italian jurisdiction.

Rental income

France and Spain both apply progressive tax rates to rental income, but deductions for maintenance and management costs are allowed, which can significantly reduce taxable income. In Portugal, rental income is taxed under its general income tax system, but expats benefiting from the NHR regime may face reduced obligations depending on their residency status. Italy also taxes rental income but provides deductions for expenses, making efficient property management essential to minimise taxes.

Wealth taxes

France and Spain impose wealth taxes that target high-net-worth individuals. In France, the “Impôt sur la Fortune Immobilière” (IFI) applies to real estate assets exceeding 1.3 € million. Spain’s wealth tax varies by region and applies to worldwide assets for residents or Spanish-based assets for non-residents. By contrast, Portugal and Italy do not impose a general wealth tax. However, Italy has specific levies on financial and real estate assets held abroad, which expats should account for in their financial planning.

Which country is best for expats financially?

For expats with significant cash assets, France is an ideal choice. Its favorable tax policies for retirees, including no taxation on U.S. pensions and exemption from wealth taxes for financial assets, make it a fiscal haven for high-net-worth individuals. For retirees with primarily liquid assets, France offers unmatched advantages.

However, for expats with substantial real estate holdings, Portugal and Italy present more appealing options. Portugal’s NHR regime allows reduced taxation on foreign pensions and excludes a general wealth tax, while Italy’s property tax system and 100,000 € flat tax for high-net-worth expats can be advantageous. Both countries allow expats to manage their real estate portfolios with relatively lower tax burdens compared to France.

Ultimately, the best country financially depends on your asset profile. Cash-rich retirees may find France the most advantageous, while property-focused expats often prefer Italy or Portugal.

Are you ready to take the next step towards your move to France? Register to one of our upcoming webinars, check out our resources on the blog, or book a consultation call where our expert will answer all your questions and help you avoid any headaches or pitfalls.