In this article, we discuss 15 most tax-friendly countries in Europe. You can skip our detailed analysis of European tax policies and recent developments, and go directly to read 5 Most Tax-Friendly Countries in Europe.
Tax rates and policies in Europe vary significantly where some countries have high tax burdens, while others have implemented tax regimes that are considered more favorable or competitive. The region has a robust tax system and places a strong emphasis on tax compliance. The EU countries have well-established tax laws, regulations, and enforcement mechanisms to ensure that individuals and businesses pay their taxes correctly and on time. World Economic Forum reported that France paid the highest amount of taxes in 2016, topping the list of tax-paying countries with a tax rate of 57.53%. Belgium and Austria took second and third place, with tax rates of 56.9% and 54.7%, respectively.
Over the years, countries in the European Union have seen a decline in tax rates as many countries took steps to attract businesses and encourage investments. According to a report by Tax Foundation, the average corporate tax rate was 32.6% in 2000, which now fell to 21.3%. However, average corporate tax revenues as a percentage of GDP grew to 3.2% in 2018, from 2.7% in 2000, as reported by Organisation for Economic Co-operation and Development (OECD).
In 2021, the European Union (EU) expressed support for a global minimum corporate tax rate of 15% as part of international efforts to address tax avoidance by multinational organizations and ensure fair taxation. In addition to this, the OECD estimated that the global minimum tax will be able to generate over $220 billion in extra revenues annually, up from its previous projections of $150 billion. As of March 2023, nearly 140 countries have signed the deal and 40 countries are all set to implement the minimum tax.
The proposal for a global minimum tax is a breakthrough in international tax policies, as it could have several implications for a wide range of tax strategies. In addition to this, the common minimum tax rate could foster collaboration in combating tax avoidance. One such example of corporate tax avoidance was seen recently, when Amazon.com, Inc. (NASDAQ:AMZN)’s Luxembourg-based unit paid no taxes on its $55 billion sales in 2021, according to a report by Bloomberg. This is to be noted that major American corporations generate significant revenues from Europe as the region represents a large and prosperous market for businesses, and American companies have established a strong presence in various industries across the continent. Bank of America compiled a list of the S&P 500 companies with the most exposure to Europe. The list revealed that International Flavors & Fragrances Inc. (NYSE:IFF), Amcor plc (NYSE:AMCR), and Fortinet, Inc. (NASDAQ:FTNT) generated 41%, 39%, and 38% of their revenues from Europe in 2021, respectively. In addition to these companies, other major tech giants like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG) have operations in Europe. In its fiscal Q2 2023, Apple Inc. (NASDAQ:AAPL)’s European revenue amounted to nearly $24 billion, up from $23.2 billion generated during the same period last year.
In one of its recent tax developments, EU lawmakers have imposed the world’s first-ever carbon import tax, knowns as the carbon border adjustment mechanism (CBAM). It is a mechanism designed to put a price on the carbon content of imported goods to prevent carbon leakage, which occurs when businesses relocate their production to countries with weaker climate policies to avoid higher costs associated with carbon emissions. Energy companies are already paying hefty taxes due to environmental impacts associated with production. According to BBC, BP p.l.c. (NYSE:BP) and Shell plc (NYSE:SHEL) paid $15 billion and $13 billion in their global taxes in 2022, despite inflation.
As inflation became a global phenomenon last year, many taxpayers looked for ways to manage their financial situations. Moving to low-tax countries with a lower overall cost of living could help individuals offset the impact of inflation on their expenses. In this list, we have compiled the list of the most tax-friendly countries in Europe.
For this list, we shortlisted some of the most tax-friendly countries in Europe. The term "tax friendly" does not specifically signify low taxes but means that these countries offer financial benefits and have favorable tax environments. We gathered data from different reliable sources, including the respective country's official documents, PwC Tax Summaries, and other think tanks. The tax rates mentioned below are for the highest tax bracket, which means that these rates are applied to individuals or businesses with the highest income levels. The countries are ranked in descending order of their corporate income tax rates as of 2023.
15. Malta:
Corporate Income Tax Rate: 35%
Personal Income Tax Rate: 35%
Malta, a small island nation in Europe, has a tax system that is often considered attractive for businesses and individuals. The country’s personal income tax rates range from 0% to 35%, depending on the income level. In addition to this, companies in Malta are subject to a standard tax rate of 35%. Maltese do not pay taxes on luxury, inheritance, gifts, and royalties, which are usually taxed at 10% or more in other EU countries. Malta is among one of the most tax-friendly countries in Europe.
14. Monaco:
Corporate Income Tax Rate: 25%
Personal Income Tax Rate: 0%
Monaco has long been considered a tax haven as the country does not impose any personal income tax on its citizens. The country applies a 25% corporate income tax on companies that generate over 25% of their revenue outside Monaco. It is one of the tax-friendly countries on our list as it has been a zero-property and zero-wealth tax country since 1870. In addition to this, the country also does not impose inheritance or gift tax on transfers of assets between family members.
13. Luxembourg:
Corporate Income Tax Rate: 24.94%
Personal Income Tax Rate: 42%
In Luxembourg, the personal income tax rates range from 8% to 42%, depending upon the income brackets. Residents have to pay 42% tax on income exceeding €200,004. Businesses in Luxembourg with taxable income lower than €175,000 are subject to a 15% corporate income tax rate. The tax rate is 17% for businesses with taxable income over €200,001, which takes the country’s overall corporate income tax rate to 24.94%. Certain companies engaged in specific activities, such as intellectual property or investment funds, may benefit from reduced tax rates or exemptions. Many major organizations have their offices in Luxembourg, including Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and eBay Inc. (NASDAQ:EBAY).
12. Slovakia:
Corporate Income Tax Rate: 21%
Personal Income Tax Rate: 19%-25%
Individuals in Slovakia are subject to personal income tax on their worldwide income. The tax rates are progressive, ranging from 19% to 25%, depending on the level of income. Certain deductions and allowances are available to reduce the taxable income. The standard corporate income tax rate in Slovakia is 21%. However, a reduced rate of 15% may apply to certain small businesses meeting specific criteria.
11. Latvia:
Corporate Income Tax Rate: 20%
Personal Income Tax Rate: 20%-31%
Latvia has a progressive tax system. Income under €20,004 is subject to 20% personal income tax and that above €78,100 is subject to a tax rate of 31%. Latvia’s standard corporate income tax rate is 20%. However, a reduced rate of 0% applies to retained or reinvested profits, provided certain conditions are met. In Latvia, certain services may be exempt from value-added tax, including medical insurance, educational, and educational services.
10. Czech Republic:
Corporate Income Tax Rate: 19%
Personal Income Tax Rate: 15%-23%
The tax rates are progressive in the Czech Republic, ranging from 15% to 23%, depending on the level of income. The corporate income tax is applied to all businesses at a 19% rate and also includes capital gains from the sales of shares.
9. Lithuania:
Corporate Income Tax Rate: 15%
Personal Income Tax Rate: 32%
Lithuania is one of the most tax-friendly countries in Europe, especially for businesses as the country imposes a corporate tax of 15%. Personal income tax is at a 20% rate and is applied to income amounts below €101,094 and 32% for income exceeding this threshold. The lower tax rates at lower income levels can be advantageous for individuals. Lithuania has a simplified tax system that includes online tax filing and digital solutions that streamline tax processes. The country’s Electronic Declaration System shows that over 90% of tax declarations are filed electronically using the system.
8. Georgia:
Corporate Income Tax Rate: 15%
Personal Income Tax Rate: 20%
Georgia is a country located in the Caucasus region of Eurasia. It is one of the most tax-friendly countries in Europe, especially for retirees as it does not tax social security and retirement income on federal return. The flat rate of Georgian personal income tax is 20% and also has a flat 15% corporate tax rate. Georgia has implemented a tax system that aims to create an attractive environment for businesses. One notable aspect is the total business tax and contribution rate, which is relatively low compared to many other countries. According to the World Bank, the total business tax and contribution rate in Georgia is 9.9% of profits, which is the world’s third-lowest rate.
7. Cyprus:
Corporate Income Tax Rate: 12.5%
Personal Income Tax Rate: 35%
Cyprus’ standard corporate income tax rate is 12.5%, which is one of the lowest within the European Union. The personal income tax rates for the country range from 0% to 35%, depending on the income of an individual. Cyprus applies a value-added tax on the supply of goods and services. The standard VAT rate is 19%. However, reduced rates of 5% and 9% apply to specific goods and services, such as food, pharmaceuticals, and hotel accommodations. In addition to this, dividends received by a Cyprus holding company are exempt from Special Defense Contribution (SDC) in Cyprus.
6. Gibraltar:
Corporate Income Tax Rate: 12.5%
Personal Income Tax Rate: 8%-30%
In 2021, Gibraltar raised its corporate income tax from 10% to 12.5%, which is still one of the lowest in Europe. Dominant utility and energy companies pay a higher rate of 20% in corporate taxes. Personal income tax rates range from 8% to 30%, based on one’s income brackets. It is one of the most tax-friendly countries in Europe as there is no tax on dividends paid by one company to another in Gibraltar. In addition to this, the country does not have any withholding tax on interest or royalty payments. Gibraltar also does not impose any value-added tax.
