Europe faces a radical fiscal shift that could redefine financial freedom for its citizens. With the new citizenship-based taxation approach (similar to that of the United States), some European countries, led by France, are considering implementing a global taxation model on their citizens, even if they reside abroad. This system would require citizens to declare—and in many cases, pay—taxes on their global income, regardless of their country of residence.
The driving force behind this fiscal trend lies in the growing need for public revenue to cover increased spending after the pandemic and other financial crises. Unlike traditional worldwide taxation systems that tax income generated only within the country, citizenship-based taxation in Europe focuses on nationality. This implies that simply holding European citizenship could entail tax obligations, even for those living in jurisdictions with low or no tax burdens.
This shift raises concerns over potential capital flight and talent exodus. History has shown similar instances, such as in ancient Rome, where excessive taxes led citizens and business owners to seek more tax-friendly territories, weakening the empire from within.
Today, European expatriates face a similar dilemma: is it worth maintaining European citizenship if it becomes an unavoidable financial burden?
This approach could impact those who view their foreign investments or income as part of their financial freedom strategy and wealth planning.
Indice del artículo
France and Citizenship-Based Taxation in Europe
France is considering a citizenship-based tax model that, similar to the U.S. system, would impose taxes on French citizens living abroad, especially those residing in low-tax countries.
This initiative, driven by France’s Finance Commission, requires French citizens who lived in France for at least three of the last ten years before emigrating to pay taxes in France, even if they are no longer tax residents.
This system would affect those residing in countries with tax burdens at least 50% lower than France’s, focusing on low-tax jurisdictions to ensure citizens do not evade their tax responsibilities to the French state.
The proposal includes mechanisms to avoid double taxation, such as tax credits for taxes paid in the taxpayer’s country of residence, though individuals would still need to make up the difference to meet France’s tax level.
This approach would apply not only to income but also to inheritance, capital gains, and dividend taxes. The proposal has sparked extensive debate in the French Parliament. On one side, the left-wing group advocating for this measure argues that French citizens have “citizenship duties,” including financial contributions, even if they live abroad.
On the other hand, several political representatives, such as Roland Lescure, representative of French citizens in the U.S. and Canada, warn about the added burden for expatriates and the complexity of applying this law without access to French public services. Opponents argue that this type of measure could discourage investment and encourage high-net-worth individuals to move to more flexible tax territories.
France faces significant challenges in implementing this system, as it would need to amend bilateral tax treaties with over 100 countries—a complex but feasible task, according to supporting legislators.
For the French government, this model also addresses the need to increase tax revenues. Supporters of the proposal advocate for it as an extension of “citizenship duties,” suggesting that the concept of citizenship could imply financial responsibilities at an international level.
The bill continues to progress in Parliament, with additional modifications and debates expected to adjust the text to European law and international treaties before implementation. This approach in France could signal the beginning of a trend in Europe, reshaping the relationship between citizenship and tax obligations in a global context.
The United Kingdom and Global Taxation for Expatriates
In the UK, the idea of implementing a global taxation system for British expatriates has gained traction amidst fiscal pressures and the need to boost public revenue post-pandemic. Unlike other European nations, the UK debate has centered around the concept of “global fiscal responsibility,” wherein expatriates would be expected to contribute to the UK tax system regardless of their residency—a model resembling the U.S. citizenship-based taxation approach aimed at reducing the national deficit by raising taxes.
This potential policy shift is partly fueled by the recent reinstatement of voting rights for British expatriates, allowing them to retain some influence over domestic politics. Certain policymakers argue that with the right to vote comes the obligation to pay taxes, invoking the principle of “no representation without taxation.” This approach specifically targets high-income citizens or those relocating to low-tax jurisdictions to avoid the UK’s higher tax rates.
The introduction of global taxation could have significant implications. Such a system might deter international professionals and entrepreneurs, leading to capital flight and encouraging citizens to seek countries with territorial tax benefits.
While France has already advanced a formal proposal, the UK is still assessing the feasibility and potential impacts, balancing revenue generation with maintaining economic competitiveness.
China: Another International Example of Nationality-Based Taxation
China has been tightening its global taxation system, especially for citizens working or residing in places like Hong Kong and other jurisdictions. In recent years, China has increased oversight on foreign income, requiring certain state-owned enterprise employees and other non-permanent residents of Hong Kong to report their global income in China.
Although China’s approach to overseas citizens is not as stringent as the U.S. citizenship-based taxation model, recent changes signal a shift toward universal tax policy. A key element of this system is the “six-year rule.” Under this rule, Chinese citizens or foreign residents in China who stay for over 183 days each year for six consecutive years—without breaks exceeding 30 days—are subject to taxes on their global income.
This includes income from all sources, such as salaries, royalties, dividends, interest, and even foreign property sales. Citizens can break this six-year chain to avoid global taxation, though the system has become increasingly restrictive as China aims to limit financial freedom for its citizens.
Where Is Europe Headed with These Policies?
Europe faces a dilemma: the need to raise additional revenue through global tax policies versus the risk of losing capital and talent. These policies raise questions about the future of financial freedom for European citizens and the implications of imposing universal taxes, following examples set by the U.S. and China.
For citizens seeking greater fiscal and asset freedom, this trend opens the door to exploring residency and citizenship in jurisdictions with territorial tax systems. Latin America and Southeast Asia offer significant tax advantages without global restrictions, promoting prosperity without excessive tax constraints.
In conclusion, these policies encourage consideration of flexible fiscal alternatives. For high-net-worth and internationally mobile citizens, the call to action is to seriously explore residency options in more tax-friendly jurisdictions.
