Taxes in Europe

Every country in the world sets the amount of its taxes and how they are collected. In Germany, the US, the UK, in every corner of the planet, people and companies are obliged to pay tax. In Europe, organisations and individuals living legally in the EU pay tax on income from work and other income. On average, a European spends a third of their annual income on taxes, yet treats this very calmly. The amount depends on where you live: rates are higher in Western European countries, but even there citizens see taxes as an investment in developing and maintaining the quality of public life.

Foreigners who have tax resident status are obliged to pay taxes. To gain it, you have to spend the period set by law in the country and meet other requirements. The lack of a single tax law causes certain difficulties. It is hard for foreigners to choose a place where they can earn a stable income with the smallest losses. Where are rates the lowest? What taxes do individuals and companies pay? In this article we answer all these questions. You will be able to choose the best country for permanent residence, a career and growing a business.

Individuals

Want to live in a European country and comply with local laws? You will have to pay part of your income into a foreign budget. Once you have tax resident status, it is important to pay taxes regularly and comply with the local legislation. In some cases individuals have to pay tax to two different countries, but agreements between EU states make it possible to avoid double taxation. The law requires you to pay tax on any taxable income.

Individuals must pay tax on the following types of income:

• Salary. Citizens pay income tax, which is progressive in many countries. The lowest rate, 10%, applies in Romania and Bulgaria. Residents of Finland pay up to 56.5% of their income. Usually the employer transfers the payments, deducting the set percentage from the salary. More often, payments grow with income: the more you earn, the higher the rate.
• Property, gifts or inheritance. These taxes may apply to cryptocurrency, real estate, cars and even animals. Sometimes no tax is charged, or it is calculated at the ordinary income tax rate. More often the tax authorities set a progressive scale. For example, the rate in Bulgaria is considered the lowest, while in Spain it remains high. Individuals must pay the tax themselves, within the set deadlines.
• Dividends. Individuals must pay tax on income from dividends. The rate depends on the country, so you need to study the legislation of the place where you live. For example, Greece has the lowest tax. The tax is paid by the recipient of the income, in line with the country’s tax rules.
• Increase in the value of assets (capital gains). In some countries tax is paid under certain conditions, when assets have risen significantly in value. Denmark applies an income tax of more than 40% on capital gains. The rate depends on fiscal policy and tax status. In most cases non-residents have to pay more than residents.

People living in Europe are obliged to give up part of their income to the state budget. The rates depend on the country, so before moving you should study the legislation of every place you like. Even a brief look at the laws and a comparison of rates will help you choose the best places for permanent residence.

Companies

The tax system applies to new entrepreneurs and large enterprises alike. Companies must pay tax on profits earned in the country. Foreign legal entities must pay tax on income earned from carrying on business in the country.

If you plan to open a business in the EU, you may qualify for a simplified citizenship procedure. Entrepreneurs and investors can obtain citizenship faster in order to enjoy all the rights available to citizens.

Income tax

In Europe businesses pay tax at rates from 9%. While companies in Hungary pay the lowest rates, in Malta they reach 35%. For non-residents, Hungary taxes all profits earned in the country. Resident companies pay tax on all their income, regardless of where the profit was earned. Malta has no separate corporate tax as such, and business owners pay about 35%.

VAT

VAT is considered one of the main types of tax in Europe. VAT is the most important indirect tax on the consumption of a company’s goods or services; it is collected from buyers and paid into the state budget. It applies to almost all goods and services. Many activities are exempt from VAT. For example, credit institutions do not need to charge VAT.

The highest rate is in Hungary, at 27%. But some companies can use the reliefs available in the country. Dairy products are taxed at 18%, and medicines at 5%. In Romania businesses must pay 19%, but 9% on sales of medicines, drinks and some other categories. In Spain the standard rate is 21%, with reduced rates for food and medicines; how to calculate it and when to file is covered in our article on IVA (Spanish VAT).

Social contributions

Europe has social contributions that play an important role in funding various areas of support. The burden is shared between employer and employee. For example, in France social insurance contributions amounting to 45% of the total rate are paid by the company.

When registering a business, choose the country with the most suitable tax regime. It is also important to consider other conditions that can affect your work: for example, a safe business environment free from unexpected court rulings, endless inspections and corporate raiding. Pay attention to how simple the reporting is, as some tax authorities insist that reports be prepared only by a certified accountant. Business owners often face confusing regulations that are impossible to understand without outside help. In Spain this role is taken on by a dedicated professional: what exactly a gestor does and which deadlines they are responsible for is worth understanding before you file your first documents, because some obligations arise as early as registering a Spanish company with the tax authority. When entering a new market, it is advisable to study the tax system thoroughly. For Spain, such an analysis (rates, deadlines and the differences between autónomo and SL) is collected in our overview of the Spanish tax system.

The lowest taxes

High-tax European countries cause serious inconvenience for both individuals and companies. In many countries this is offset by important social guarantees. When moving, foreign nationals try to choose countries with more acceptable tax legislation. Here is where taxes in Europe are lowest.

The 2024 “Rankinq of tax hells” lists countries with low tax rates. The report includes countries with more acceptable living and working conditions, political stability and simplified tax filing.

The most favourable conditions are in the following countries:

• Ireland. Corporate tax is charged at the lowest rate in Europe (12.5%), which is why many foreign investors choose Ireland. Here you can pay on average profit and carry the remaining amount forward to the following year. Income tax for entrepreneurs, employees and pensioners with income of up to 40 thousand euros is 20%, and 40% above that. Single parents have a higher threshold, while spouses are assessed jointly. The country is not tax-efficient for people earning above-average salaries.
• Switzerland. The tax authorities levy taxes at both local and federal level. This leads to noticeable differences in the amount paid in different parts of Switzerland. Individuals pay 11.5% to the federal budget, plus additional amounts to the cantonal authorities. Even in low-tax areas it is not favourable for individuals. The country is chosen by entrepreneurs, as corporate tax is up to 21.6%. The standard VAT rate (8.1%) is also favourable, as it has minimal impact on prices.
• Luxembourg. Its tax system resembles Switzerland’s, but it uses a progressive income tax scale. Rates range from 8% to 42%: the minimum rate applies to annual income up to €14,508 and the maximum to income from €220,788. There is a solidarity surcharge used to fund special projects that strengthen social cohesion. Business owners also pay 6.75% to the municipal budget. Corporate taxes are 15% on profits up to €175,000, and 31% on income above the lower level and up to €210,001. Higher incomes are taxed at 17% plus a 7% surcharge.
• Denmark. As elsewhere in Northern and Western Europe, standard personal income tax includes several rates at once: the combined rate is 51% and cannot exceed 52.07%, so citizens can use certain deductions. Share income is taxed separately: 27% on income up to €7,900 and 42% above that. Danish tax residence is unfavourable for individuals but quite acceptable for companies: corporate tax is 22%, and the burden for many industries does not exceed 23.45%.
• Sweden. With annual earnings of up to €2,154, people may pay no tax, but income up to €53,196 is taxed at 32% for the municipal budget. On higher income, people pay an additional 20% to the state budget. The capital gains rate in Sweden is considered high, reaching 30%. So investing in passive income is unfavourable for individuals. Corporate tax is 20.6%, which is much more favourable than in many countries.
• Norway. The country uses a progressive system with a base rate of 22% on annual income up to €18,280. Higher earnings attract additional stepped rates. Companies pay 22%, and businesses in some economic sectors 25%. Oil extraction is also subject to 56% of the profit. The law prevents large profits from the sale of natural resources by imposing high charges.
• Poland. The country offers the best conditions for residents with modest incomes, as rates are much lower than in other Northern and Western European countries. On salaries up to €835 individuals pay no tax, and above that level up to €27,879 the rate is 12%. A salary above €27,850 means paying 32% plus an additional €2,500. Companies pay 19% on income of up to 2 million euros a year.
• Bulgaria. Citizens usually pay 10% on their income. In Bulgaria, insurance contributions are paid for both businesses and employees. Corporate tax is also 10%, which is favourable for companies.
• Romania. Individuals working in Romania pay 10% on their income. Officially employed workers pay social contributions. To attract staff, employers may raise salaries to a level that covers the tax costs. Companies have a reasonable rate of 16%. Small companies with income under €500,000 pay 1%. That is why Romania is chosen by people who want to open a business with a modest income.
• Serbia. The country has fairly low tax rates. Rates are up to 20%, and residence permit holders pay tax at reduced rates.

Spain and other countries are among those with an acceptable fiscal policy. They are not in the top group with the lowest rates, but they offer acceptable conditions for your development and business growth.

Microstates outside the EU are a separate category. Andorra has no wealth or inheritance tax, and income tax reaches a maximum of 10%, but resident status there is granted on its own terms and requires physical presence in the country: how this works is explained in our article on the Andorran residence permit. Spanish rates for comparison are collected in our overview of taxes in Spain.

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Becoming a tax resident

Third-country nationals who are in a country legally become residents. You need a residence permit: both temporary and permanent types qualify. Which grounds give such status in Spain and how they differ in timelines and rights is covered in our guide to residence permits in Spain. Countries issue permanent and temporary residence permits on different terms, but the standard procedure includes several steps.

You can claim tax residence if you meet these conditions:

• living in the country for more than 183 days a year;
• carrying on business within the jurisdiction;
• choosing the country as your main place of residence;
• holding significant assets in the country.

European countries take into account both entry and exit dates. The authorities also look at bank accounts you open, including deposits and loans.

Tax authorities are interested in collecting all the payments due from a taxpayer. Whatever your status, you may be obliged to pay taxes. The country whose passport you hold will not release you from your obligations of its own accord. For example, a Spanish tax resident with a Russian passport will have to submit an application to the Spanish tax authorities with a document confirming regular payment of taxes in Russia.

A special double taxation agreement, concluded with most European countries, avoids the risk of being taxed twice. Russia has concluded such agreements with 26 European countries: under them, you can choose the country where you will pay the necessary taxes. For example, Russians can work in Europe and pay tax there or in Russia.

In many European countries individuals and companies must pay taxes at high rates. But there are also countries offering acceptable conditions for workers and businesses. When looking for a place to live, work and develop a business, it is best to choose a country that matches your expectations and means. Personal income tax, VAT, corporate tax and other taxes must be paid on time. In any country late payment leads to penalties, and tax evasion to more serious consequences.