European Governments Cannot Stop the Exodus of Wealthy Individuals – The Economist

Vyacheslav Dvornikov

Feb 4, 2025

Governments of European countries are tightening taxes for the wealthy who cease to be tax residents, but these measures bring modest revenues and face legal difficulties, notes The Economist.

In Germany, despite the coalition crisis, a "departure tax" was introduced on January 1: investors who have invested in funds, including ETFs, over 500,000 euros, are required to pay capital gains tax if they plan to leave the country or change their center of life interests without changing residency. It will not be possible to transfer assets, including to countries where the capital gains tax is zero.

Similar measures have been adopted in other countries. Norway has tightened the dividend tax for emigrants, and France and the Netherlands are considering similar initiatives. These taxes are perceived as a way to prevent capital outflow and find new sources of budget revenue. The French budget, although rejected, was calculated for stricter taxation of those leaving. We talked about this in more detail here.

However, the real effect is small: wealthy citizens find loopholes, and EU regulations complicate the application of these taxes. For example, Germany, according to lawyers, may violate the rules of free movement of capital within the union. One possible option is a deferred tax, where former tax residents are required to pay tax if they sell assets within a few years after departure. But even here, loopholes remain.

As a result, revenues from such taxes are insignificant. According to estimates by the Norwegian Ministry of Finance, the "departure tax" will bring only $120 million a year 12 years after its introduction, which is only 0.04% of the country's budget. It is not surprising that some states abandon such measures: Finland and Sweden considered introducing the tax but ultimately refused. And in Norway itself, the opposition, leading in the polls, opposes it.