EU Blacklist: What Is It, How To Get Whitelisted, & More!

Heard about the EU blacklist countries and want to do everything to avoid getting into it?

Tax havens, also known as countries with zero or very low taxes, are important from a strategic point of view in crafting tax strategies.

They become exponentially more significant not just for multinational corporations having multiple overseas companies, but also for individuals with location-independent businesses.

However, as much as zero-tax countries are beneficial for taxpayers, they are detrimental to the tax revenue of countries where the incomes are generated.

Hence, countries are constantly creating new rules and regulations to offset the loss of tax revenue arising from such tax havens.

One such measure is the EU Blacklist – Let’s go through everything you should know about it.

The EU Blacklist countries

What is the EU Blacklist?

The EU Blacklist, as the name suggests, is a list of countries that, in the view of the EU, are negatively affecting the EU, global taxation, and compliance laws.

It was formed in 2017 and it keeps a constant watch on laws concerning transparency in taxation, adherence to international standards, and information exchange on tax.

How Does the EU Blacklist Work?

The 3 criteria defined by the EU for determining whether a country should be put on the Blacklist or not are as follows.

Tax Transparency

The EU emphasizes tax transparency, requiring countries to adhere to global standards for sharing tax-related information.

This includes the exchange of information upon request and automatic exchange of information, ensuring transparency in financial dealings.

Countries failing to meet these standards risk being blacklisted. The aim is to combat tax evasion and encourage open financial dealings, making it harder to hide wealth or income from tax authorities.

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Fair Tax Competition

The EU assesses countries to ensure they engage in fair tax competition.

This involves scrutinizing harmful tax practices, like offering preferential tax treatments that could encourage artificial profit shifting to low or no-tax jurisdictions.

The goal is to create a level playing field in taxation, preventing countries from using tax policies to gain an unfair advantage over others.

Implementation of anti-BEPS measures

The EU expects adherence to anti-BEPS (Base Erosion and Profit Shifting) measures set by the OECD.

This includes complying with minimum standards to prevent tax planning strategies that exploit gaps and mismatches in tax rules.

Countries are evaluated on their efforts to implement these measures, with those failing to do so at risk of being listed.

This is part of a broader effort to prevent multinational companies from shifting profits to low-tax environments to avoid paying taxes.

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Implications of Getting Added to the EU Blacklist

When a country is put on the infamous Blacklist, it may have serious effects on the EU home companies that are doing business via overseas companies located on the Blacklist.

Once a country is included on the Blacklist, the EU member nations can put various types of sanctions on these countries, including:

  1. Increasing the withholding tax on payments made to countries from the EU member countries.
  2. Disallowing the deduction of costs relating to transactions between overseas companies of
    Blacklisted countries.
  3. Removing any exemption given to investors from countries in EU member countries.
  4. Additional auditing requirements and inspection of transactions involving Blacklisted
    countries.
  5. Increasing the compliance requirements for companies dealing in countries like disclosure
    requirements of related party transactions.
  6. High taxes on remittance made to and from Blacklisted countries.

Apart from the above negative impacts, Blacklisted countries lose their reputation as a fair tax territory, causing a decrease in foreign investments, and the EU puts restrictions on development funds provided to such countries.

These restrictions damage the economies of the zero-tax countries severely. They also make the tax benefits available to overseas companies non-beneficial.

Thus, it is very important for tax planners to keep an eye on the EU Blacklist and Greylist prior to deciding their tax structure. In any case, the compliance cost and withholding taxes negate the low taxes of these tax-haven countries.

A thorough cost-benefit analysis is required to be done before establishing an overseas company in these countries or acquiring tax residency in such countries by digital nomads.

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What to do When your Tax Jurisdiction is Blacklisted?

As stated above, the Blacklist is updated regularly and used as a temporary measure to pressure governments to change their rules.

Cayman Island was put on the list in February 2020 and removed in September 2020, immediately after it passed the reforms required in the disclosure requirements of investment fund schemes.

The UAE and Oman addressed the issues raised by the EU Blacklist, and they were also promptly removed from the Blacklist.

Similarly, Barbados was included on the Blacklist in September 2020 after it was declared ‘non-compliant’ by the Global Forum on Transparency and Exchange of Information for Tax Purposes report.

However, it has since been removed from the list and is in good standing.

Thus, before jumping to any conclusion haphazardly, you should check whether the reasons stated for blacklisting are temporary or structural in nature.

If it can be reasonably assured that the blacklisted country is working towards solving the issue, it will be a short-term issue which does not require any large changes in tax strategy.

However, if the government of the blacklisted country is non-cooperative and does not show any intent to resolve the issue, it is advised to check the various options available as a company.

What Global Minimum Tax Means for Global Citizens

Countries like Fiji, Panama, Vanuatu, and others, have been on the Blacklist for a long time, and are expected to stay on it for some time into the future.

If you plan to use a country on the Blacklist as your tax haven, be sure to be extra cautious. Creating overseas companies in these countries may prove to be a bad financial decision if the Blacklist is not taken into consideration.

In the extreme cases where the country of your overseas company has a hostile government, there will arise a need to shift the jurisdiction base of your overseas company.

Businesses should keep an attentive watch on the EU Greylist as well. Generally, countries that are put on the Greylist are under constant vigil of the EU and have a high probability of getting shifted over to the Blacklist.

Companies also need to keep track of the Double Tax Treaties made by their home country and overseas company country. A strict treaty may render the low tax of tax haven useless, and we wouldn’t want that to happen to your company!

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Conclusion – The EU Blacklist

The EU Blacklist and Greylist play an important part in determining the tax strategy for location-independent entrepreneurs and businesses. These lists and the laws governing these lists are constantly amended as and when new situations arise around the world.

As you can see, there are plenty of different factors involved in deciding a sound tax plan apart from tax rates. For a new digital nomad business, it can be very painful to misjudge these international laws and treaties.

This Blacklist is especially important for our European digital nomads as it is enforced by EU member states, but can also serve as an international guiding tool for other countries in determining the tax cooperation of a country.

We always advise seeking professional guidance prior to deciding on a new tax structure strategy, where your business licenses, personal citizenships and residencies, and geographic preferences can all be taken into consideration.

If this is something you need help with to get your business structure optimized, feel free to reach out to us!

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Check out our current services. We are here to guide you and help you navigate through the complex world of International Taxes and Business Structures.

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We hope you have enjoyed this article. If you have any further questions please leave us a message below and we’ll get back to you as soon as we can.

    NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.

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