10th February 2023
European tax and recruitment update
Anti-money laundering (AML) and tax fraud will continue to be a big priority for European tax authorities as they clamp down on the perpetrators of illegal activity that is costing them millions of euros. Another concern for governments and organisations alike is how to tackle the acute skill shortages that are making it increasingly difficult to attract talent during what are already extremely challenging times. In our latest article, we round up some of the principal stories across the EU and discover some of the initiatives that are currently taking place to try and resolve these pressing issues.
European tax updates
Our first news concerns Monaco, long a tax haven thanks to its favourable laws and known for being the playground for the rich and famous. Independent pan-European media network, EUROACTIV, reveals the findings of a Council of Europe report, which highlights the inadequacies of the measures of the principality’s AML regime. Such are the levels of concern in this report that it has come to the attention of the international Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, which promotes the global standards to mitigate these risks.
The report quotes the “internationally oriented financial activities” that make Monaco a “prime target” for financial fraud and tax evasion. Typically, the fraud has been committed in the home country of the business or individual, with the proceeds then laundered in Monaco. Although terrorism financing risks were found to be quite low on the radar pending further investigations, the FATF nonetheless has decided to place Monaco under a one-year observation period, during which time if they don’t see structural reforms, then its name will be included on a ‘grey list’ of countries (Monaco had originally been removed from the list in 2009).
The report, which was published by the Council’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), pays particular attention to income tax fraud given that income tax evasion is not a criminal offence in Monaco. The supervisory activities of financial institutions and non-financial institutions, such as estate agents, property brokers and private banking, is another area that has raised a red flag for the watchdog, given a systemic lack of regulation which is seemingly allowing the movement of significant amounts of money.
According to the report, these sectors all represent a high risk of tax and financial fraud, which is still the case despite an evaluation period that concluded in March 2022. The “frequency of onsite inspections” was cited as being a necessity to help supervise Monaco’s current perilous situation. The highest levels of risk though are attributed to private banks and wealth management firms with guidelines on compliance as part of its supervisory framework also a critical requirement.
‘Boosting’ talent attraction
In other news, as reported by SchengenVisaInfo.com, the European Commission will launch its ‘Talent Booster Mechanism’ to support those countries impacted by demographic transition so that they can remain competitive given a reduced workforce, the exodus of the younger generations and a lack of tertiary educated people. A statement read, “We must ensure that regions experiencing population shrinking have the means to attract and harness the fruit of their investments. By addressing these challenges, we will ensure the future prosperity of our societies and wellbeing in the EU.”
Data from Eurostat, the European Office for Statistics found that 82 regions across 16 EU countries faced challenges relating to dwindling populations and the ever-widening gap between urban and rural areas. A lack of innovation and poor access to services were other key areas highlighted in the report. The departure of those in the 15-39 category has caused widespread talent shortages, having a particularly negative impact on the Baltic nations as well as some regions in France, Spain, Greece, Poland, Romania and the Czech Republic. Almost all regions in Finland have been affected.
Indeed, data from the same organisation has shown that the population in rural areas fell by 0.1% between 2015 and 2020. Interestingly, there was no change for intermediate regions but urban areas registered a 0.4% rise every year during the period. Younger EU citizens (under 20s) preferred cities and urban areas, with numbers rising by 0.3% compared to the drop of 0.3% and 0.7% in intermediate and rural areas respectively. For EU citizens of working age, the corresponding numbers constituted a rise of 0.1% and falls of 0.5% and 0.6% respectively.
The rise of digital nomads in the EU
Digital nomad visas are also proving popular in the EU and are being offered by countries such as Croatia, Latvia, Italy, Spain, Greece, Hungary, Romania and the Czech Republic. Portugal is a case in point with initiatives continuing to attract foreign talent into its country. Indeed, a report by Portugal Resident found that 200 such visas were issued by authorities in the past few months with citizens from the UK, US and Brazil the main beneficiaries. If the worker decides to stay beyond the 12 months, he or she can apply for a five-year residency and then, subsequently, permanent residency.
The rules in Portugal are the same for salaried individuals who must demonstrate proof of a work contract or provide a statement from their employer to confirm their employment. A key benefit of the digital nomad visa is that holders can live and work remotely for companies outside Portugal – though the complexities of remaining compliant from a tax perspective make it a necessity to have expert guidance. Individuals must also earn more than €3,040 per month.
Luxembourg meanwhile has changed its requirements for holders of the ‘Blue Card’, the work and residence permit that allows highly skilled non-EU citizens to work in the bloc. This can then lead to residence and EU citizenship. The same website reports that the Duchy has, however, raised its salary threshold for normal occupations to €84,780 while for shortage occupations that level is lower at €67,824. All non-EU workers need to have temporary authorisation and a residence permit to stay in Luxembourg. The application can be requested by the employer on behalf of the worker.
Third country nationals who qualify as highly skilled workers who are looking to work in Luxembourg for more than three months must meet a number of requirements. These include having to apply for temporary authorisation via the Immigration Directorate of the Ministry of Foreign and European Affairs for which a valid passport must be presented. Some may need to request a D type visa after being granted temporary authorisation to stay. This is part of the Blue Card and residence process for highly skilled workers with individuals also having to declare their arrival and undergo medical checks.
As we’ve seen in our latest round-up, authorities and international bodies continue to wage war on tax evasion and money laundering. Companies placing contractors must be careful to minimise risks, ensure they remain tax compliant and adhere to local employment legislation when engaging with contractors, whether digital nomads or highly skilled workers from third party countries. If you’re unsure about your position, our 6CATSPRO experts are here to help.
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