Europe does not like to talk about tax competition.

Politicians generally prefer to talk about fairness, tax harmonisation, closing loopholes and preventing aggressive tax planning. But underneath that political language, something else is happening. European countries are competing for wealthy individuals, entrepreneurs, family offices and investment — and increasingly, they are competing for the people who control the capital.

Tax Competition Is Already Here

The traditional definition of tax competition was relatively simple. One country lowers its corporate tax rate and attempts to attract businesses from another country. The modern version is considerably more sophisticated.

Countries can compete for wealthy individuals through special personal tax regimes, residence programmes, exemptions on foreign income, flat taxes and other incentives. The objective is not necessarily to become a low-tax country. It is often to become a **more attractive country for a particular category of taxpayer**.

That distinction matters.

A country can maintain relatively high taxes for its existing domestic population while offering a materially different regime to certain new residents. Across Europe, governments have increasingly used precisely this type of targeted approach.

The European Commission made the point explicitly in November 2022 when it described new and innovative forms of tax competition as potentially capable of depleting public revenues and disrupting the level playing field between businesses. At the same time, the EU acknowledged that tax competition itself is not necessarily illegitimate; the concern is whether particular measures create harmful distortions.

Italy Has a Different Proposition

Italy is a good example.

Italy introduced a special regime for individuals transferring their tax residence to Italy. Under Article 24-bis of the Italian Tax Code, qualifying new residents could elect to pay a fixed annual substitute tax of €100,000 on foreign-source income rather than being subject to ordinary Italian taxation on that income. The regime was available to individuals who had not been Italian tax residents for at least nine of the preceding ten years and could apply for up to fifteen years.

The attraction was obvious. An internationally wealthy individual could potentially exchange an uncertain and potentially substantial marginal tax burden for a predictable annual liability.

But tax was not the only attraction.

Italy offered something that cannot easily be legislated into existence: a major European economy, a sophisticated industrial base, Milan as an international business centre, Rome, Florence and other globally recognised cities, and a lifestyle that is difficult for other jurisdictions to replicate.

This is an important lesson.

Tax competition works best when taxation is combined with something people actually want.

Portugal Took a Different Route

Portugal provided another example.

Its Non-Habitual Resident regime was designed to attract new residents by providing special tax treatment for qualifying individuals for a period of up to ten years. For qualifying high-value activities, the regime provided a 20% special rate on certain Portuguese employment and self-employment income, while particular categories of foreign income could receive favourable treatment subject to the applicable rules.

But again, the tax regime was only part of the proposition.

Portugal offered European Union membership, political stability, international connectivity and a lifestyle that had proved attractive to internationally mobile Europeans. The tax regime could bring a person’s attention to Portugal. The country itself had to make the decision worthwhile.

This is why tax competition should not be reduced to a comparison of headline rates. The tax regime may open the door; the jurisdiction has to persuade the person to walk through it.

Greece Is Competing Too

Greece has also recognised the opportunity.

Its special regime for wealthy new residents allowed qualifying individuals transferring their tax residence to Greece to be taxed on foreign-source income under an alternative regime. The regime imposed an annual lump-sum tax of €100,000 and was designed to attract capital and investment to Greece, subject to specific eligibility and investment requirements.

Again, the logic is straightforward. A country does not necessarily have to win a global tax competition. It only has to be sufficiently attractive to persuade a wealthy individual to choose it over another jurisdiction.

Greece has something else working in its favour: location, climate, lifestyle, EU membership and proximity to the markets of Europe and the Middle East. For the right investor or entrepreneur, those characteristics can be as important as the tax rate itself.

Switzerland Never Really Left the Game

Switzerland demonstrates why the idea of a new European tax competition is somewhat misleading.

The competition is not entirely new. Switzerland has been competing for wealthy individuals for generations.

Its proposition has traditionally been based on stability, sophisticated financial services, political predictability and a long-established wealth-management industry. Its tax system is also decentralised, with significant cantonal differences.

Switzerland’s expenditure-based, or lump-sum, taxation regime provides another illustration. A 2022 analysis of the regime described it as a tax system specifically designed to attract wealthy foreigners who establish residence in Switzerland without engaging in gainful employment there.

The Swiss model demonstrates an important principle.

Wealth does not necessarily move to the country with the lowest tax rate.

It moves to the jurisdiction that offers the best overall combination of taxation, security, infrastructure, financial services, political predictability and quality of life.

Monaco Is the Extreme Example

Monaco takes the proposition even further.

It has built its international reputation around a combination of personal taxation, security, scarcity and location. The country does not have to offer the same economic scale as France, Germany or Italy. It offers something different: a highly concentrated international population, a limited supply of residential property, proximity to major European economies and an environment that has become particularly attractive to internationally mobile wealth.

This is not traditional tax competition.

It is wealth-location competition.

The distinction is important because wealthy individuals are not simply choosing where to pay tax. They are choosing where to live, where to establish relationships, where to invest, where to educate their children and, in some cases, where to build the next stage of their economic lives.

Cyprus and Malta

Cyprus and Malta are also important parts of this landscape.

Both jurisdictions have developed regimes designed to attract international individuals and investment. Their propositions are different from those of Switzerland or Monaco. They are smaller economies, but their size can actually be an advantage.

Cyprus had developed a particularly attractive non-domicile framework under which qualifying Cyprus tax residents who were not domiciled in Cyprus could benefit from exemptions from Special Defence Contribution on certain dividend and interest income. A 2022 overview of the Cyprus tax regime described the jurisdiction as offering significant incentives to non-residents and non-domiciled individuals.

Malta, meanwhile, maintained a range of special residence and international tax programmes. Its Commissioner for Revenue stated in June 2022 that Malta’s international tax framework was designed to promote international investment and support the development of financial services and Malta as an international financial and business centre.

Their propositions were therefore not simply about headline tax rates.

They could position themselves as international bases for people who wanted access to Europe without necessarily living in one of Europe’s largest economies.

Again, the objective was not necessarily to become Europe’s largest financial centre.

It was to capture a valuable segment of international wealth.

The Competition Is Not Necessarily About the Lowest Rate

This is where the political debate often goes wrong.

Tax competition is frequently described as a race to the bottom. But wealthy individuals do not necessarily choose jurisdictions in this way.

A billionaire may be willing to pay more tax in one country if that country provides significantly greater security, business opportunities or lifestyle benefits. An entrepreneur may accept a higher tax burden because the country provides better access to customers or capital. A family may choose one jurisdiction because of education, another because of succession planning, and another because of security and proximity to major markets.

The tax rate is part of the calculation.

It is not necessarily the calculation.

This is why the broader geography of wealth matters. As I argued in The New Geography of Wealth, wealth is increasingly influenced by mobility, jurisdictional choice and the changing relationship between capital and place.

What Governments Are Actually Buying

When a government creates a special tax regime for wealthy individuals, it is effectively making an economic investment.

It is giving up some potential tax revenue from that individual in the expectation that the individual will generate other economic benefits. Those benefits can include consumption, property investment, employment, professional services, business investment, entrepreneurship and, importantly, future capital formation.

This is why a simple comparison of tax rates can be misleading.

A country may collect less income tax from an internationally mobile individual while gaining substantially more from the person’s broader economic activity.

The same principle applies to investment migration. Residence or citizenship may be only the visible component of a much larger economic relationship between an individual and a jurisdiction.

The real question is therefore not simply how much tax the individual pays.

It is what the individual contributes to the economy as a whole.

The Family Office Effect

The family office is perhaps the clearest example.

A wealthy family does not arrive alone. It may bring lawyers, accountants, investment managers, bankers, property advisers, executives, domestic staff, businesses and investment capital.

A jurisdiction that attracts the family office may therefore capture an entire economic ecosystem.

This is one reason wealthy individuals are increasingly important to governments. The prize is not simply the individual’s tax bill. The prize is the economic activity surrounding the individual and the capital that accompanies them.

That distinction becomes particularly important as wealthy families become more sophisticated about jurisdictional choice. They are increasingly evaluating not only taxation but also investment opportunities, regulatory environments, political stability, education, healthcare, succession planning and access to professional services.

The Problem for High-Tax Countries

This creates a difficult problem for countries with established high-tax systems.

They cannot compete simply by cutting taxes. Their governments need revenue, their populations expect public services, and they have large existing tax bases that cannot simply be moved offshore.

But internationally mobile wealthy individuals are different.

They can compare jurisdictions.

And increasingly, they do.

The question therefore becomes one of elasticity. How much additional tax can a country impose before enough people begin changing their behaviour to affect the revenue calculation?

That is the question governments should be asking.

It is also why the movement of high-net-worth individuals out of established European centres deserves more attention than it often receives.

Tax Competition Can Be Rational

There is a tendency to assume that tax competition is inherently harmful.

I disagree.

Competition can be economically healthy. Countries compete for companies. They compete for tourists. They compete for foreign direct investment. They compete for technology businesses.

Why should they not compete for wealthy individuals?

If a country can attract a successful entrepreneur who establishes businesses, employs people and invests capital, there can be a genuine economic benefit.

The problem arises when the system becomes so artificial that it simply moves taxable income around without creating meaningful economic activity.

That is a different issue.

Indeed, the European debate was already moving in this direction in 2022. On November 8, EU finance ministers agreed to strengthen the Code of Conduct on Business Taxation, explicitly distinguishing legitimate tax competition from harmful tax measures capable of producing double non-taxation or other distortions.

The Real Question Is Substance

The future of European tax competition will therefore depend increasingly on substance.

Governments are becoming less tolerant of arrangements that exist purely on paper. An individual who claims residence in a country but has no meaningful connection with it is increasingly vulnerable to challenge. The same applies to corporate structures.

Tax residence, economic substance and actual activity matter.

This is also why the international tax environment cannot be separated from broader questions about where wealth is located and how mobile it has become.

The next generation of wealth regimes will probably therefore need to be more sophisticated. They will have to attract genuine residents and genuine economic activity rather than merely provide a legal address or a nominal tax advantage.

Europe Is Still a Wealth Market

It is important not to overstate the fragmentation.

Europe remains one of the world’s most important concentrations of private wealth. London remains a global financial centre. Switzerland remains a global wealth-management centre. France and Italy remain major economies. Germany remains an industrial powerhouse.

The point is not that these centres are disappearing.

The point is that wealthy individuals now have more choices within Europe.

The geography of wealth is becoming more fragmented.

This is not necessarily a rejection of Europe’s major centres. It is a recognition that wealth can increasingly be separated from the jurisdiction in which a person built a business or accumulated capital.

Brexit Added Another Dimension

Brexit also changed the calculation.

London remained enormously important, but the UK’s relationship with the European Union changed. For internationally mobile individuals, this created another reason to examine where they should establish residence and where they should conduct their businesses.

A wealthy individual does not necessarily need to abandon London.

They may simply choose to live elsewhere while maintaining economic connections to the UK.

This is precisely the type of behaviour that makes modern wealth migration different from traditional migration. The question for internationally mobile wealth is increasingly one of jurisdictional choice rather than simple physical relocation.

The broader issue was already visible in the discussion surrounding Britain’s treatment of wealthy residents.

Governments Are Competing Even When They Deny It

The irony is that governments can condemn tax competition while simultaneously participating in it.

A country may criticise another jurisdiction for offering special treatment to wealthy individuals, then introduce its own incentive programme. Another country may criticise investment migration while creating special residence regimes for entrepreneurs or investors. Another may oppose preferential tax treatment while providing exemptions or special treatment for particular forms of foreign income.

The terminology changes.

The economic objective does not.

Attract people with capital.

That is not necessarily an illegitimate objective. Governments compete for companies and investment every day. The real policy question is whether the incentives generate sufficient economic substance to justify the preferential treatment.

The Race Is Not to Zero

The likely future is therefore not a European race toward zero taxation.

That would be unrealistic.

Instead, we are likely to see increasing competition between different tax models: flat taxes, special regimes, territorial systems, exemptions, residence incentives, investment incentives and programmes designed around particular categories of internationally mobile individuals.

The question will be which model produces the best economic result.

This is particularly important as governments simultaneously attempt to protect their tax bases. In 2022, the EU was strengthening its approach to harmful tax competition, while the international tax system was also moving toward greater coordination on minimum taxation and the taxation of cross-border economic activity.

The result is unlikely to be the elimination of competition.

It is more likely to be a shift in how jurisdictions compete.

The debate over Hungary’s resistance to the proposed global minimum tax was already illustrating the tension between national tax sovereignty and international coordination.

The Investor’s Perspective

For the wealthy individual, this creates both opportunity and complexity.

The question is no longer:

“Which country has the lowest tax rate?”

It is:

“Which country offers the best overall environment for my wealth and my family?”

That requires a much broader analysis.

Tax. Residence. Succession. Investment. Business. Property. Education. Security. Banking. Regulation.

The optimal jurisdiction may therefore be different for every family.

This is one reason tax planning increasingly overlaps with wealth planning. A jurisdiction that looks attractive from a purely tax perspective may be unattractive when succession, investment, regulatory exposure, family circumstances and long-term residence are considered together.

The European Tax Map Is Changing

The European tax map of the future will not be dominated by one jurisdiction.

There will be different centres for different types of wealth.

London will remain important for financial markets. Geneva and Zurich will remain important for wealth management. Monaco will remain important for internationally mobile European wealth. Milan will attract entrepreneurs and investors. Portugal and Greece will compete for new residents. Cyprus and Malta will compete for internationally mobile capital and individuals. Other jurisdictions will continue to develop their own propositions.

This is competition.

Governments may not like the term.

But wealthy individuals understand it very well.

The Competition Nobody Wants to Talk About

Europe is already competing for wealth.

The competition is simply not always presented in those terms.

Every time a government introduces a special regime for new residents, changes its treatment of foreign income, creates an investment incentive or develops a residence programme, it is making a statement about the type of capital it wants to attract.

That is not necessarily bad policy.

In fact, it can be very good policy.

But governments should recognise what they are doing.

Because the wealthy already do.

They compare jurisdictions. They compare tax regimes. They compare lifestyles. They compare legal systems. They compare investment opportunities. And they move when the overall calculation changes.

The European tax competition is therefore not something that may happen in the future.

It is already happening.

The only question is which countries will understand how to compete for wealth without destroying the economic and political legitimacy of the system that attracts it.