Lowest corporate tax in Europe

Country	Details
Bulgaria	Corporate income tax is 10% and income tax is 10%.
Ireland	Ireland’s corporate tax rate of 12.5% is attractive to international businesses. Its incentives have helped make Ireland a European headquarters destination for many.
Cyprus	Corporate income tax is 12.5%. Tax incentives for foreign investors, including non-residents and investors.
Estonia	The tax system is unique in that corporate tax is only payable when profits are distributed. Income tax is levied at a fixed rate of 20%.

Things to Consider While Establishing a Company in Europe

One has to consider the overall tax burden that is other than corporate tax, which includes VAT, labour taxes, and social contributions.

Double Taxation: You have to see the double taxation treaties between your country and the country in which you plan to invest and start a business.

Country reputation: Some of the low-tax countries are considered – though this is a misconception – as “tax havens”, which affects reputation and consequently follow-on business behaviour.

You should, therefore, always carry out the proper analysis and, when required and relevant, consult professional tax and legal advisors prior to decisions about registering a business or investing in any jurisdiction.

European countries with highest % of foreign ownership of firms

Data relating to foreign firm ownership in European countries fluctuate over time and depend on a set of factors such as economic policies, investment climate, and global trends. However, according to historical data and economic reports, some European countries have traditionally reported high percentages of foreign firm ownership. Examples include:

1. Luxembourg

Luxembourg is a large financial centre with a friendly tax policy and pronounced international orientation; accordingly, the proportion of foreign-owned companies in the country is very significant.

2. Netherlands

Thanks to a stable economic position, convenient location, and encouraging investment climate, the country has gained for many years a long-standing reputation as a recipient of foreign investment.

3. Switzerland

Switzerland offers a stable political environment, along with a tax-friendly climate and in addition provides complete confidentiality to foreign companies.

UK

UK, London is a global financial hub and has historical exposure to foreign investments.

Ireland

Ireland remains one of the favourite destinations for global headquarters and foreign firms; mainly it is because of the tax rate of.

Estonia

The Estonian e-Residency program, for example, has been a real magnet for foreign investments, more than 15% of the companies created by foreign non-Estonians and more than 200 mln euros in taxes received last year.

What to consider for non-dom status persons

• Foreign ownership of companies’ shares may increase or decrease as political and economic events will appear, among which may be Brexit, any new changes to tax legislation and international agreements.
• Market dynamics: Global economic trends, such as trade wars, pandemics, and financial crises, can also impact a country’s attractiveness for foreign investment.
• Please refer to recent economic reports, statistics, and analyses for the most up-to-date information and a more detailed understanding.

Lowest corporate tax in Europe

Taxes in Europe are paid by all individuals and legal entities earning money in one of the countries on its territory. Foreigners who have been given tax residency status pay their contributions on all the income that has been received both in and outside of the EU state: it is assigned to immigrants that have spent at least 183 days in the jurisdiction during the year, with other mandatory conditions being met. The quirk in the EU law is that, within the bloc, each state has a right to set the amount of rates as it sees fit. Citizens of European countries can take advantage of a double taxation treaty if the jurisdictions of one’s citizenship and residence have concluded a double taxation treaty.

The EU itself does not have any single law regulating the payment of fees as an organization but, instead, this area is under the control of separate narrowly focused directives and conventions. This article describes the types of taxes in the EU states, differences between the fees for individuals and legal entities, and the requirements for applicants who want to get tax residency status in Europe in 2023.

Types of Taxes in European Nations

Europe uses myriad taxes that are different and dependent on the government of each jurisdiction. Sometimes, the minimum rate is normally imposed by the EU legislation, for example, excise duties. Tax obligations depend on the status of a person and where their income originates.

• Corporate Taxes: Every company has to pay its taxes directly to the regulatory authority of their own country where the business is being carried out. However, individual payments are allowed, but in most cases employers take the responsibility for the payment of taxes of employees.
• Tax Structures: The countries may have either a progressive or stable tax system.

Critical Types of Taxes in the EU

Both citizens and foreign residents are subject to various types of taxes in European countries, including:

Income Taxes for Individuals

The income tax can be imposed by a country where an individual obtains an income or holds a tax residency. This encompasses wages, pensions, allowances, profits from property, and capital gains. A foreigner employed in an EU state who has a salary and does not obtain tax residency will only be required to pay the local income tax on a salary that was obtained within that particular country but not that earned outside. Tax residents, however, pay on worldwide income.

Corporate Taxes

All businesses will need to pay a tax in the state in which they are both registered and operate. The rules of taxation differ depending on the jurisdiction, as there are resident companies which get taxed both on national and international level while foreign businesses are to be taxed only based on local activities.

VAT

EU law provides a minimum standard VAT rate of 15%, a minimum reduced rate of 5%. The appropriate rate of VAT, which is incorporated into the price, is decided by the individual states and businesses can deduct pre-paid VAT on sales.

Harmonized Excise Duties

Excise duties are indirect taxes by consumers of certain products, such as spirits, tobacco, and electricity. The EU sets minimum rates, but member states can set higher rates.

Social Levies

Social taxes by employees, employers, and the self-employed pay for benefits such as pensions and sickness allowances. Even though there is no uniform amount in Europe for social levies, usually a person is subject to social security contributions in the country where he or she works. EU citizens who have acquired benefits may continue to receive them even after re-domiciling to another member state.

Please note that additional fees may apply.

In some countries, residents are liable to pay additional fees, such as environmental or transport taxes, which are typically the responsibility of vehicle owners. Furthermore, citizens in countries such as Austria, Germany, and Finland may be required to pay church taxes if they are registered members of a religious institution.

Taxation of Individuals

Residency will be considered if a person has remained in the jurisdiction for at least six months in the previous year. Or residency may be held based upon permanent address or the situs of their interests. Many EU and non-EU jurisdictions have double taxation treaties to prevent income from being taxed in a large number of countries.

The following classes of income are liable to taxation:

By EU law, individuals are required to pay tax on the following classes of income, including:

• Salary: In the majority of the EU member states, income tax on wages is progressive. The lowest rate – 10% – is levied in Bulgaria and Romania, while in Finland, the highest rate can be as much as 56.5%. Payment is normally by deduction at source, responsibility usually lying with the employer.
• Taxation on property, inheritance, and gifts: Taxes could be levied on nearly any form of asset, such as animals and cryptocurrency to vehicles. This is not a practice used by every country in the world, and even among the ones using it, progressive rates are often set. Bulgaria is at a minimum of 0.4%, while Spain goes up to 87.6% depending on the region.
• Dividends: The minimum is Greece, going to a maximum of 42% in Denmark. The dividend tax is payable by the individual.
• Capital Gains: The taxation rate of capital gains varies in each country. The lowest ones are 15%, recorded in Greece and Hungary, up to a maximum of 42% in Denmark.

A foreign company registered in a European country has an obligation to pay taxes both on domestic and international profits. On the other hand, companies of foreign origin are liable to pay taxes only on local income. Fees payable by legal entities include:

Corporate Income Taxes:

These vary from the lowest 9% in Hungary to the highest 25% in France. In addition is the VAT ranging from country to country. The lowest is Luxembourg with a rate of 16% while the highest is Hungary with 27%. Lithuania has the lowest employer contribution rate, 1.77%, while Slovakia has the highest rate, 35.2%.

Customs Duties:

Companies in customs unions are exempted from customs duties, but businesses importing goods from outside the country are required to pay customs tariffs depending on the origin and value of the merchandise moved into their country.

Taxation of income produced by foreign branches

Most usually, such a foreign company branch, operating in Europe, is subject to corporate tax and VAT. For the dependent branches, one is allowed to consolidate their financial activity reporting, while independent branches have to create a separate report.

Cheapest corporation tax in Europe in 2025

When choosing a country to move to or start a company, foreigners often tend to choose jurisdictions with the most favourable taxation. The lowest income taxes in the EU states are presented in the table below:

How to become a tax resident in an EU country

Tax residency in a European country can be granted to persons permanently residing in the territory of that country. In this respect, for such purposes, the applicant needs to obtain a residence permit or passport of such jurisdiction. This can be accomplished through one of the available migration programmes.

Lowest corporate tax in Europe

The people pay the most tax in Denmark, France and Austria; the lowest income tax rates in Europe are imposed in Hungary, Estonia and the Czech Republic.

Payment of taxes

Most European countries have introduced a progressive tax payment structure, i.e. the levies increase with the growth of wages. The rates and the number of categories vary greatly from country to country.

Income tax rates in Europe

The highest personal income tax rates among the Organisation for Economic Co-operation and Development (OECD) countries are imposed in Denmark – 55.9%, France – 55.4% and Austria – 55%.

In Spain this indicator is 54%, in Belgium – 53.5%. The maximum rates are very high in Finland, Portugal and Sweden.

Country	Tax Rate
Denmark	55.9%
France	55.4%
Austria	55%
Spain	54%
Belgium	53.5%
Finland	53.4%
Portugal	53%
Sweden	52%
Slovenia	50%
Netherlands	49.5%
Ireland	48%
Germany	47.5%
Italy	47.2%
Iceland	46.3%
Luxembourg	45.8%
UK	45%
Switzerland	44.8%
Greece	44%
Turkey	40.8%
Norway	39.5%
Poland	36%
Lithuania	32%
Latvia	31%
Slovakia	25%
Czech Republic	23%
Estonia	20%
Hungary	15%
Bulgaria	10%

Countries with low taxes Europe

Hungary has the lowest income tax rate in Europe—15%, Estonia has 20%, and the Czech Republic has 23%. Each country sets its own levies, but common standards must be fulfilled throughout the European Union. Social tax is a direct tax. Its purpose is to ensure that a socially insured person is entitled to receive certain services from the state.

Services may include the following:

• old-age pension
• a disability pension
• a survivor’s pension
• sick pay
• maternity benefits
• unemployment benefits
• funeral allowance

Therefore, accordingly, in social tax, the following payments for different purposes include: payment for accumulation of pensions, maternity benefits, sickness, disability, incapacity for work and unemployment benefits (insurance).

The taxpayers are employers, employees, self-employed persons, and persons who pay social tax at their own wish.

Wages will be the object of tax in view of the legislation, both for employees and employers, while a certain amount will present the object of tax for self-employed persons. Normally, the employer withholds a part of the tax—the part that the employee pays—from the wages and pays another part of the tax for the employer. Generally, social tax has to be paid once per month. In most countries, the amount of social tax must be decreased by the amount of personal income tax.

Or in other words, the more social tax paid, the higher the social security of the taxpayer; for example, the old-age pension depends on the amount of social tax paid.

The name of social tax is different in every country. For example, in the UK it is called “National Insurance,” in Ireland, “Pay Related Social Insurance (PRSI),” and in other countries, it is called “social insurance.”

The average social tax rate for the whole European Union is 34%. The tax rate is relatively low in Denmark due to its high personal income tax. Social tax in the Netherlands is integrated into income tax.

Table of social taxes for different European countries, showing the tax rate in per cent:

№	Country	Tax rate (%)
1	Denmark	14.00
2	Ireland	14.75
3	Malta	20.00
4	Luxembourg	25.94
5	Finland	28.00
6	Netherlands	28.81
7	Croatia	30.70
8	Lithuania	30.98
9	Bulgaria	31.40
10	Sweden	31.42
11	Austria	32.00
12	Estonia	33.00
13	Poland	33.00
14	Cyprus	34.00
15	Latvia	34.09
16	Portugal	34.75
17	Spain	37.25
18	Slovenia	38.20
19	Germany	39.00
20	Romania	39.95
21	UK	40.00
22	Greece	40.06
23	Czech Republic	45.00
24	Hungary	45.50
25	Belgium	48.07
26	Slovakia	48.60
27	France	50.00
28	Italy	50.00

These data highlight the diversity for social tax rates across European countries. The relatively low rates of Denmark and Ireland compare with the relatively high French and Italian rates.

Average salary in Europe 2023-2025

The following series of tables within the article on European Union taxation ranks European countries by average monthly salary once all taxes have been deducted. This figure represents the average net income received by employees. Yet, this is not very relevant because, in some countries, workers may get less take-home pay; yet, they will pay high taxes, which in turn may come back to them in the form of certain services from the state: free medicine, education, etc. In countries with liberal economies, income may be higher and taxes less. Nevertheless, citizens in these countries often pay a significant proportion of their income towards various goods and services that are free or highly subsidized in more socially sensitive economies. It must be emphasized that the current ranking of average wages takes into account only some of these factors. The numbers presented here reflect only the average nominal wage that the average citizen actually takes home – net pay. It is also to be taken into consideration that this ranking corresponds to the official net salary, and in some countries with a high level of shadow economy, real average salary can be higher.

The highest average incomes were recorded in Scandinavia and Switzerland, whereas the lowest salaries have been recorded in Eastern and South-Eastern European countries. Traditionally, the lowest salaries among EU countries have been those of Bulgaria and Romania.

Following is a list of European countries based on figures from the IMF, World Bank and national statistical agencies. All data are converted to euros at current exchange rates at time of publishing. Average salaries are given for both EU countries and other countries within Europe:

№	Country	Average monthly salary, €
1	Switzerland	4 902
2	Denmark	3 914
3	Norway	3 795
4	Luxembourg	3 573
5	Iceland	3 221
6	Austria	3 104
7	Ireland	3 041
8	Germany	2 970
9	France	2 791
10	Sweden	2 770
11	Finland	2 509
12	UK	2 454
13	Belgium	2 442
14	San Marino	2 390
15	Netherlands	2 152
16	Spain	2 039
17	Italy	1 752
18	Cyprus	1 658
19	Slovenia	1 363
20	Czech Republic	1 250
21	Estonia	1 214
22	Greece	1 116
23	Portugal	1 110
24	Lithuania	1 059
25	Latvia	1 050
26	Malta	1 021
27	Poland	1 002
28	Croatia	974
29	Hungary	950
30	Slovakia	919
31	Romania	785
32	Montenegro	706
33	Bulgaria	665

In Europe, CGT means the tax charged on any profit made from disposing of assets such as shares, bonds, or real estate. The rates and conditions vary from country to country, reflecting different national policies and economic strategies for EU countries. In certain European states, it emerges as one of the vital sources of revenue, whereas in others, it may be reduced or not applied at all in specific cases.

The countries that have the highest rates of taxation on capital gains include:

High Capital Gains Tax Rates: The country of Denmark has one of the highest capital gains tax rates in the world and may reach as high as over 40%, depending on the amount and kind of investment.

France has similarly high rates, especially if social contributions are included in calculating capital gains tax. In those cases, the overall liability can be more than 30%. Ireland: The capital gain tax rate can also be as high as 33%.

The lowest capital gains tax rates include:

Czech Republic: Because of special capital gains, it has a minimum or even no tax at all.

Slovakia provides relatively low rates with some possibilities for tax planning. The capital gains tax rate in Estonia is connected with the income tax rate of 20%. Part of the capital gains are not taxed at all.

Some of the following characteristics of Europe’s capital gains tax are:

• Holding period: In a number of countries, the taxation rate depends on the period an asset is held. Generally, a considerably reduced rate is given to investments held for an extremely long time.
• Incentives and Exemptions: Some states give incentives to small businesses and retired persons, and some on reinvestment of sale proceeds in certain types of assets.

Particularly when planning your personal tax strategy, remember the differences in tax systems and regulations that exist throughout Europe, even within the EU. Yet, importantly, capital gains are treated differently in a lot of the individual countries of the European Union. Therefore, investors and asset owners should consider local conditions and regulations of the countries in which they are investing or holding assets, taking into account.

Taxation of capital gains is a multi-faceted and complex field throughout Europe. An investor may either account for local conditions and regulations or seek opportunities to optimize the tax position while investing in or owning assets. Depending on the country, the investment size, and the investor’s particular circumstances, an effective tax strategy may significantly reduce the overall tax burden.

Lowest VAT in Europe 2023-2025

Some entrepreneurs do their tax planning based on VAT rates, so we summarized the relevant information in a table: It is necessary to underline that the VAT in EU member states and ———– in other European countries differs.

The critical difference is that the legislation of VAT in EU countries is harmonized in accordance with the EU VAT Directive 2006/112/EC of 28 November 2006. This directive is based on the following principles:

• Value-added tax is charged for transactions involving a VAT payer in the territory of a member state and on imports of goods into the territory of the EU. It is important to note, however, that the import of goods from one member state of the EU to another member state of the EU is subjected to VAT in the country where the goods will be used.
• Country of the purchaser shall be considered to be a place of supply of goods in case of intra-EU sales. Import VAT becomes payable in case of supplies from outside the EU in the country where goods have been cleared and released into free circulation.
• The obligation to charge VAT arises when the purchaser receives the goods or services. A supplier’s issuing of an invoice does not constitute this moment.
• The standard VAT rate in EU countries is at least 15%, with no maximum limit. The current minimum VAT rate in the EU is 17% in Luxembourg, and the maximum is 27% in Hungary. Countries can apply two special reduced VAT rates to the limited list of goods and services according to the Directive. Their minimum should not be less than 5%, while this exception is given only to Spain, Italy, and Luxembourg.
• The Directive provides for cases where certain goods and services are completely exempt from VAT. In general, any export from an EU country, irrespective of the destination, is refundable in respect of previously paid VAT connected with the production of goods sent for export.
• VAT refund in the EU-the most extensive clause of the Directive, which provides for the possibility to refund in the country of registration VAT that was paid in another EU member state.
• Distance sales from the EU via the Internet or a catalog are subject to VAT in the country where the goods are sent. However, if such sales to a given country reach that country’s threshold, one needs to register oneself as a VAT payer. For example, in Belgium, such a threshold is 35,000 euros. Therefore, provided the volume of distance sales to Belgium exceeds the above limit, then the sending company should acquire a Belgian VAT number.
• With the EU, you can check the VAT number of any European company. This can be done through a special service on the official website of the EU by selecting the country where you received the VAT number and entering that number.
• Value Added Tax Number – a unique number assigned to a legal entity when registering as a value added tax payer. In EU countries it starts with two letters of the country code, the remaining symbols are digits and the number of digits may vary from country to country.

Current value added tax (VAT) rates in European countries

Tax residence in Europe – expat taxes

Tax residency in a low-tax jurisdiction in Europe offers the opportunity to significantly reduce the fiscal burden. However, before choosing a country for residency, it is recommended to familiarise yourself with the current income tax rates in European countries.

The most favourable conditions for individuals are provided in the following European countries:

How to obtain tax residency in Europe

In order to pay low taxes in Europe, it is necessary to obtain residency status in the desired country. In most cases, to become a tax resident, it is necessary to fulfil a number of conditions, including living in the country for at least 183 days during the year. However, it should be noted that in some countries the requirements are more stringent, and it is possible to obtain favourable tax residency in Europe even earlier.

It is quite difficult to choose on your own the country in Europe which offers the best tax residency, as you are bound to study the corporate and tax legislation of the country you are interested in rather thoroughly. So, it would be far easier to ask for help from lawyers and tax consultants operating in Regulated United Europe.

Accordingly, Regulated United Europe lawyers would recommend considering the following criteria when choosing a country to start a business:

Facility of starting and operating a business. In addition to the tax rate, remote management of the company is a concern, as well as how much it would cost to maintain. If your area of business requires licenses or permits from the state, you will want to carefully consider this issue before opening a company.

Taxation. The main issue for both you and your company as owners are individuals depends on whether you plan to reside in the country where you open your business or only intend to set up a legal entity and manage it remotely. In the first case, taxation for individuals is important for you; in the second case, it is only corporate taxes.

Human capital. The list of countries that would fit the bill can vary greatly depending on the business of the company – if you need a highly qualified labour force with good English language skills to carry out your activities, then the countries with the lowest wages in the EU are not the right option for you.

Level of salary. As in the point above, the most important role is taken by the area of the company’s activity – if the area of your business presupposes employment of a large number of low-skilled labour, you should first refer to the countries with the lowest wages of the European Union.

Countries in Europe that have the lowest tax

The Estonian model of taxation is unique among European countries, probably the most favorable for entrepreneurs and investors; it presupposes nondistortion of the process by taxing only the profit distribution, and it can be said to have obvious advantages in business growth and development. In the present paper, we would like to discuss Estonia as a leader among European countries providing the most favorable conditions to companies in respect of taxation.

Characteristics of the Estonian Tax System

The Estonian taxation system stands apart from all other countries by its corporate profits, which are only taxed in instances of distribution of the profit. Profits invested or reinvested in the company are not taxed, thereby encouraging reinvestment and rapid enterprise growth. It encourages companies to grow and develop innovative activities while it is now becoming one of the most promising jurisdictions for doing business in Europe.

Benefits of Estonian tax model for business

1. Encouraging reinvestment. Since it does not provide for tax on retained profit, companies effectively can boost their capital with reinvestments. This is one of the main driving forces behind sustainable growth.
2. Transparency and simplicity: The Estonian tax system is characterized by a high degree of transparency and simplicity. All this decreases administrative barriers and compliance costs.
3. International business support. Due to Estonia’s well-developed digital infrastructure and the possibility to manage business online with the help of its unique system called e-Residency, many favorable conditions are created for international companies to be happy with their decision to choose this country as a destination for their endeavors.
4. Tax incentives for a startup company. Having provided a number of tax incentives and support for the establishment of start-ups, it is actually one of the best platforms in Europe for innovative entrepreneurship.

It forms a leader in Europe on the Estonian scene regarding favourable taxation for business. A special Estonian tax system encouraging reinvestment and innovation, transparency, and ease of administration, together with strong support for international and innovative businesses, form an ideal environment for a company to develop and expand its business in Estonia. All these factors turn the country into an attractive point on the European map for entrepreneurs who try to find the maximum of efficiency in their business and look for a tax structure that would be optimal.

Lowest Income Taxes in Europe

Excluding the search for optimal conditions to work and live in, Europe represents a mosaic of diverse tax systems. It is among European states that Estonia became an outsider for its tax policy, offering some of the most favorable conditions for citizens. Below follows a closer look at why it is Estonia leading in Europe regarding favorable personal income taxation.

Peculiarities of Income Tax in Estonia

One of the most loyal progressive personal income tax rates in Europe is used in Estonia. The personal income tax is 20 per cent, though due to the wide possibilities offered by the tax deduction system, the real tax rate is one of the lowest in Europe.

Strengths of Estonian tax environment

1. Understandability and transparency. The Estonian tax system has a high degree of comprehensibility and transparency. Ease of declaring and payment decreases the administrative burden on taxpayers.
2. Tax benefits and deductions. Speaking about the individual taxpayers, Estonia provides quite a wide range of tax-free allowance and deductions that significantly reduce the taxable income and thus the amount of tax payable.
3. Incentivizing investments: Due to the Estonian tax system’s peculiarity, there is no taxation levied on reinvested profit, which would encourage investments and is one way of benefiting capital growth.
4. Digitalization of processes: Estonia is considered a leader in the world in digitalizing public services, including tax administration. It provides for electronic income declaration to simplify this process as much as possible.

While most European states put noticeably higher income tax rates and at the same time have more complicated taxation and administration systems, Estonia creates more attractive conditions for people. This not only reduces the financial burden on taxpayers but also provides favorable conditions to attract highly qualified specialists and investors in the country.

Estonia is proof that even within the frames of the modern European economy, it is possible to create a tax system that would favor business development and attract foreign specialists. The combination of low tax rates with simplicity and transparency of taxation makes Estonia one of the most attractive countries in Europe for living and working. Thus, Estonia is the leader in terms of favourable personal income taxation not only throughout Europe but also can be viewed as a successful example for many countries on the international level.

Lowest taxes in Europe for business

Nowadays, a country may be chosen based on its tax policy for business implementation. Europe with different tax systems gives an entrepreneur numerous opportunities to optimize his or her tax liabilities. In this context, Estonia belongs to those countries which have some of the most favorable tax systems in Europe for business by offering special conditions for developing companies and attracting investments.

Peculiarities of the Estonian tax system

Estonia introduces a new concept of corporate income taxation, which is paid only in the case when the profit is distributed as dividends. The corporate tax constitutes 20 per cent, but until the payment of the dividends is performed, company’s profit can be subject to reinvestment being tax-free. Due to this, the given approach motivates business to grow and develop as the capital may be efficiently utilized and multiplied.

Business advantages

1. Incentivising reinvestment: due to the fact that the system defers taxation of the profits to the moment of their distribution, it encourages companies to reinvest their earnings in business and accelerates development and expansion.
2. Simplicity and transparency: high simplicity and transparency are typical for the Estonian tax system, which decreases the administrative burden of a company and the risk of tax disputes.
3. Support for innovation: Estonia actively supports innovative projects and startups by offering tax incentives and several support programmes for them, which turns the country attractive for technology companies.
4. Digital economy. Thanks to the developed e-government infrastructure, Estonia offers unique opportunities to conduct business in a digital environment, making a lot of procedures easier and more accessible.

Comparison with other European countries

Among other European countries that have more traditional and often heavy approaches to taxation, Estonia has some undeniable advantages in doing business. This places Estonia among the top destinations for investors and businesses looking for a spot to invest in with regard to effective tax planning and optimization of liabilities.

Estonia is among the most striking European countries when it comes to attracting attention in terms of taxation with regard to entrepreneurs. The innovative approach to taxation, support for reinvestment, ease of administration, and focus on digitalization create a very favorable environment for the development of companies of all sizes. Thus, Estonia guarantees not only some of the lowest taxes in Europe for businesses but also it is a prime example of how state tax policy can drive economic growth and innovation.

Lowest taxes for freelancers in Europe

In the globalised world and in the development of the digital economy, freelancing is turning into one of the most popular forms of employment. Europe, with its diverse tax systems, offers freelancers ample opportunities. On the other hand, when choosing a country to register an activity, it is important to take into account not only the amount of taxes but also the convenience of doing business. In this context, Estonia is the most attractive jurisdiction for freelancers due to its favourable tax policy and developed e-government infrastructure.

Peculiarities of taxation of freelancers in Estonia

Within Estonia, freelancers have the option to conduct their activities under the e-Residency system. It provides a means not only for smoother procedures in business management but also for optimizing tax burdens. The income tax of individuals is 20 percent, with various exemptions and deductions to ease the burden of taxation.

Benefits for freelancers

1. Simplicity and accessibility. Registering and managing a business is as easy and accessible through e-Residency as anywhere in the world for freelancers from different corners of the world.
2. Tax optimisation. The Estonian tax system is very friendly, enabling possibilities of tax optimization, including several exemptions and deductions applicable to the income of freelancers.
3. Government support. The Estonian government does much to support freelancers and entrepreneurs by offering various support and training programs.
4. Digital infrastructure. Thanks to a highly developed digital infrastructure, freelancers can efficiently manage their business, communicate with clients and access government services online.

Comparison with other European countries

Compared to other European countries, Estonia offers some of the most favourable conditions for freelancers. Low tax rate, possibility of tax optimisation, as well as convenience and ease of doing business make Estonia an attractive jurisdiction for international freelancers.

Choosing Estonia as a jurisdiction at the time of registration of a freelancer’s activity opens not only possibilities for optimization of tax liabilities but also access to the most convenient and effective system for carrying out business management. The benefits of the Estonian tax system, together with the developed digital infrastructure of this country, turn it into one of the most attractive countries in Europe for freelancers who seek to maximize efficiency and minimize administrative barriers when running their business.

Which EU country is best to choose for tax residence

Choosing a country of tax residence is one of the most important decisions that every international entrepreneur and investor needs to make. Within the European Union, there are numerous jurisdictions with their own certain tax regime which offers different advantages. However, when it comes to choosing tax residency, it is not only a question of the tax rate but also of the general policy of taxes, stability of the economic environment, and ease of doing business. In this context, Estonia is one of the most attractive countries for tax residency in the EU.

Main advantages of Estonia

1. Progressive taxation exists. Estonian corporate income tax can be paid only in one case: when an enterprise distributes dividends. Thus, companies can reinvest their profits without additional tax burdens on them or their owners.
2. Simplicity and transparency are in place. The Estonian tax system is characterized by a high level of transparency and predictability, which minimizes risks for businesses and eases the planning of tax liabilities in general.
3. Digital economy and e-Residency. Estonia is one of the most advanced countries in the world in terms of the digitalisation of public services. The e-Residency programme provides an opportunity to run the businesses online from anywhere in the world, which is especially appealing for international entrepreneurship.

Comparing to Other EU Countries

While Other EU countries—Ireland or Cyprus, for example—offer attractive tax regimes for businesses, this is an unbeatable combination in Estonia: low taxes, digitization of processes, and stability in the business climate. The Estonian tax environment is simple and clear-cut, unlike other jurisdictions where low taxes are combined with complex administration or uncertain tax laws.

Choosing Estonia as a country of tax residency, entrepreneurs and investors get optimal effective tax planning in the stable and predictable jurisdiction. The innovative tax system, combined with the advanced digital infrastructure and the ability to enter the European market, makes Estonia one of the most attractive countries for tax residency in the European Union.

EU countries with the lowest import taxes

Import duties are among the most important trade policy tools that influence economic relationships among countries. Inside the EU, tariffs and duties are harmonized for all members of the customs union, but due to numerous trade agreements and economic zones, some countries and territories offer special conditions when importing goods. In this article, we will look at which EU countries can boast the lowest import duties and what benefits this can provide to international entrepreneurs.

EU and Import Duties: The Big Picture

The European Union levies the Common Tariff Rate on goods imported from outside of the union. However, through various trade treaties, items originating from specific countries can be imported at lower rates or even duty-free. Within the EU itself, there are free economic zones and territories with special taxation regimes that may also offer lucrative conditions for imports.

Countries with the Most Favorable Conditions

1. The Netherlands. Having a favorable geographical position, together with the port in Rotterdam as one of the biggest in the world, creates optimal conditions in the Netherlands for importing and further re-export. The state actively uses its logistical advantages by offering customs clearance with the simplified procedure and special economic zones.
2. Belgium. Belgium also enjoys the same logistical advantage because of its port, housed in Antwerp. There, customs are known to be quite efficient, and the channels of accelerated import processing are well developed.
3. Luxembourg. This country doesn’t have any seaports, but still it offers lots of attractive conditions for imports due to very favorable tax legislation and a high level of logistics infrastructure development.
4. Malta. Malta provides special conditions in case of importation of goods, especially for the services and technology sector, by view of policy to attract foreign investment and develop economy.

EU trade agreements with third countries ensure low import duties for European businesses. Where these agreements are between the countries participating, a substantially reduced rate or even complete waiver from duty may be extended to specific categories of goods.

Which country to choose for importation of goods into the European Union depends on many factors, including logistics and customs procedures, as well as tax policy. For instance, the Netherlands, Belgium, Luxembourg, and Malta can be included in the category of attractive jurisdictions in terms of import duty and may provide substantial benefits for international entrepreneurs. However, while choosing a tax strategy, a holistic approach has to be considered by analyzing all the associated costs and likely benefits of trading in the country selected.

Tax comparison Europe

Tax policies vary widely across Europe, making the continent attractive to international investors in certain jurisdictions depending on their tax rates and regulatory environment. In this article, we will look at the countries with the highest and lowest tax rates in Europe to help investors and entrepreneurs make informed choices when planning their business operations.

High-tax countries

1. Denmark. Denmark is often singled out as having one of the highest levels of taxation in the world. The standard income tax rate for individuals can reach up to 55.9%, including all municipal and state levies. This is due to the high level of social guarantees and quality of life.
2. Sweden. Sweden’s taxes are also high, with a top personal income tax rate of about 52 per cent. As in Denmark, high taxes go to finance extensive social protection and public services.
3. Belgium. Belgium has one of the highest taxation rates in the EU, with a top personal income tax rate of up to 50%. The tax system in Belgium is complex, with many local and regional taxes increasing the overall tax burden.

Low-tax countries

1. Bulgaria. Bulgaria Bulgaria offers one of the lowest tax rates in the European Union, with a flat rate of corporate tax and personal income tax of 10%. This makes the country attractive for foreign investors and business immigration.
2. Ireland. Ireland is known for its corporate tax rate of 12.5%, which is one of the lowest in Europe. This has contributed to Ireland becoming a significant financial hub, attracting many international companies, especially from the high-tech sector.
3. Cyprus. Cyprus offers a corporate tax rate of 12.5% and a number of tax incentives for foreign investors, making it a popular choice for international business. In addition, Cyprus has an advantageous programme for investors who can take advantage of special tax treatment of dividends and interest.

The choice of a country to do business in Europe depends significantly on the tax policy and economic environment. High-tax jurisdictions tend to offer high levels of social protection and developed infrastructure, while low-tax jurisdictions attract businesses with favourable tax rates and less bureaucracy. It is important to carefully analyse all aspects before deciding where to incorporate a company to ensure the best fit between tax strategy and business objectives.

Taxes optimization in Europe

A study conducted by Organisation for Economic Co-operation and Development bears witness that corporate taxes are the most destructive to economic growth in Europe, whereas personal income tax and consumption tax are less destructive. The same goes with property taxes: they have the least contribution to deterring a country’s economic growth. The competitive and neutral tax code contributes to the country’s sustainable economic growth and attracts foreign investment, and simultaneously collects sufficient funds in the treasury for state needs.

The Estonian tax rating is most attractive in Europe already for the tenth year. First, the 20 per cent corporate income tax rate is paid only by distributed profits. Second, Estonia boasts a flat 20 per cent personal income tax rate not applied to personal dividend income. Third, property tax applies only to the value of land but not to real estate or capital. Finally, the country has a territorial tax system that excludes from its domestic tax 100% of foreign profits earned by domestic corporations.

European Tax Competitiveness Index

• Estonia
• Switzerland
• Czech Republic
• Luxembourg
• Lithuania

Overview of best ranking EU countries regarding tax competitiveness

Estonia

• For one decade now, Estonia has been ranked number 1 in the International Tax Competitiveness Index.
• There is only tax on distributed profits under the Estonia corporate income tax system, and thus companies can reinvest their profit without paying any taxes.
• Property taxes are only levied on the value of the land.

Switzerland

• Switzerland has above-average reimbursement conditions for investment in machinery, buildings, and intangible assets.
• Switzerland boasts 102 tax treaties, which is quite an impressive number, and no CFC (controlled foreign corporations) rules – the latter are designed to block corporations from shifting pre-tax profits from a high-tax country to a low-tax country by utilizing forms of income that can be easily shifted round.

Czech Republic

• The corporate rate of 19 per cent below OECD average 23.6 per cent.
• High threshold for obtaining a VAT number.
• The Czech Republic also has a territorial tax system that only exempts both dividends and capital gains earned from other European countries, and also has an extensive network of tax treaties.

Luxembourg

• Capital gains taxation is exempted when any asset, such as shares, has been held for at least six months, hence encouraging long-term savings.

Lithuania

• Corporate tax rate: 15 per cent, which is considerably lower than the EU average.
• Labour taxes are lower than the average in the EU.

Least competitive tax systems in Europe

Italy has the second least competitive tax system in the OECD. The Italian tax system includes a number of distortionary property taxes, such as: i) a separate levies on the sale of real estate; ii) other real estate financial transactions; and iii) a wealth tax on individual assets. The high standard VAT rate of 22 per cent is complemented by one of the fifth narrowest consumption tax bases in the OECD.

The economies that rank with Italy at the bottom of the European tax competitiveness ranking – France, Portugal, Poland, and Spain – commonly impose relatively high marginal corporate income tax rates or have multiple layers of tax rules. All five countries that are ranked at the bottom have aggregate corporate tax rates above the EU average.

Ireland ranks poorly in the ranking despite a relatively low corporate tax rate. This is due to the high level of personal income and dividend taxation, but also because of the relatively narrow VAT base. The five lowest ranked countries have abnormally high corporate income tax rates in a range from 25.825 per cent up to 35 per cent. Unusually high top income tax thresholds well above average income are found for four of the five lowest-ranked countries. Of these, the highest aggregate corporate income tax rate is 31.5 per cent in Portugal. Portugal also levies one of the highest top personal income tax rates at 53% in addition to further taxes.

The lowest maximum corporate income tax rates in the OECD are found in Hungary at 9 per cent, Ireland at 12.5 per cent and Lithuania at 15 per cent. No such tax is levied in Estonia.

Loss relief rules: carry forwards and carry backs

Hungary, Poland and Slovakia have the most severe restrictions on the carry-forward of company losses (next year): carry-forwards are not allowed and carry-forwards are not only limited to five years, but also limited to 50 per cent of taxable income. In 2023, only the Estonian and the Latvian systems consciously have no limits on loss carryforwards.

Capital allowance: machinery, buildings and intangible assets

For instance, Estonia and Latvia permit 100 per cent of the present value of capital investments to be written off, since their corporate tax applies only to distributed profits and thus is determined by cash flow.

Portugal, Luxembourg, Germany and France apply income tax to all or part of their corporate income tax base.

Most countries tax personal income using two approaches. First, countries impose income taxes and payroll taxes on income from work. The structure of those taxes can affect people’s choices of whether to work, to work additional part-time jobs, or whether a second family breadwinner will work. Second, people are taxed on their savings through the imposition of taxes on capital gains and dividends. In most cases, these taxes represent a second tier of corporate income taxes and could have an impact on savings and investment decisions. High capital gains and dividend taxes may lower the total savings and investments in a country.

The income tax system in most countries has a progressive tax structure where earn more income, they fall into a higher tax bracket. The top statutory personal income tax rate applies to all income above a cut-off level.

The total statutory personal income tax rate including employee social contributions is highest in Slovenia at 67.5 per cent while Estonia has the lowest rate at 21.6 per cent.

Along with wage income, individual income tax systems in a large number of countries tax investment income through the taxation of capital gains and dividends.

Capital gains generally arise when an individual purchases an asset – usually corporate stock – in one period and then sells it in another period at a gain. A dividend is an after-tax payment to the individual from corporate profits.

Capital gains taxes and personal dividend taxes represent a double taxation of corporate profits and thereby further increase the tax burden on capital. When a corporation realizes a profit, it first faces the corporate income tax. The after-tax profit can then typically go one of two ways. The corporation can retain the after-tax profit. That raises the value of the business and thereby its stock price. The shareholders then sell the stock and receive capital gains, which requires them to pay tax on that gain. Another option is that a corporation distributes after-tax profits to shareholders through dividends. Shareholders who receive dividends then pay dividend tax on that income.

Example:

If a company earns $1 million of taxable income with a 20 per cent corporate income tax rate, there would remain $800,000 to reinvest in the company, thereby increasing the value of the stock, or to pay dividends. The shareholder may then be subject to an additional 20 per cent tax on the gain from the sale of the stock or on the company’s dividends. In effect, the system taxes business profits at 36 percent. An individual who expects that an investment will yield a 10 percent real return may realize a mere 6.4 percent profit after tax.

VAT/sales tax exemption threshold

Most OECD countries offer thresholds above which firms must pay VAT/sales tax. Where a firm’s annual income is beneath the threshold, it is not obligated to enter the VAT system. This means that small businesses – contrary to those above the threshold – do not charge VAT on commodities sold to final consumers, but at the same time cannot recover a VAT refund on the amount paid for business expenses. While relieving very small businesses from the burden of the tax saves administrative and compliance costs, needlessly high thresholds are distorting in that they tend to benefit small enterprises at the expense of larger firms.

Property tax

Property taxes are government imposition on an individual’s or entity’s assets or estates. The collections and frequency depend on the class of estate tax. Inheritance tax for instance is imposed once a person dies and his or her estate flows into the hands of heir correspondingly. Estate taxes come in fixed periods, which for most countries is annually, and their assessment has been dependent on the value of assessable property such as land and real estate. Apart from land tax the rest of the estate taxes augment economic distortions and bring adverse long-run impact on economy and its productivity.

Property taxes

Many countries also impose estate taxes on a person’s wealth. These come as inheritance or succession taxes, which are imposed either on a person’s estate at death or on assets transferred from the deceased’s estate to the heirs, or as a recurring tax on a person’s wealth. Inheritance and inheritance taxes restrict resources available for investment or production and decrease incentives to save and invest. This decrease in investment goes against economic growth. Additionally, these taxes – especially inheritance and inheritance tax – can be avoided through certain planning techniques, making the tax an inefficient and unnecessarily complex source of government revenue.

Inheritance and gift taxes are significant burdens on the taxpayer, while at the same time producing very scant revenues for the state. Inheritance, inheritance and gift taxes in OECD countries generated an average of 0.15 per cent of GDP in tax revenue, with the highest amount collected only 0.74 per cent of GDP in France, despite the fact that this tax may go as high as 60 per cent in some cases.

European countries with no inheritance, inheritance or gift tax: Austria, Estonia, Israel, Latvia, Norway, Slovakia and Sweden.

Property transfer taxes

Property transfer taxes are taxes on the transfer of real estate, land improvements, machinery from one person or company to another. In the Czech Republic, Estonia, Lithuania and Slovakia there are no property transfer taxes.

Withholding taxes on dividends, interest and royalties to foreign investors

The withholding rates are the highest in Switzerland, which withholds 35 per cent on dividend or interest payments by Swiss companies to foreign entities or individuals. There is no taxation of dividends and interests in Estonia, Hungary and Latvia.

Royalties – On royalties also, Belgium calls for firms to withhold the maximum amount, 30 per cent. Hungary, Latvia, Luxembourg, Hungary, the Netherlands, Norway, Sweden and Switzerland have no requirement for firms to withhold any amount of royalties for purposes of tax withholding.

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