EU Countries with the Lowest Taxes
Updated on Monday 22nd October 2018
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Europe is an attractive market that presents numerous business opportunities. Investors looking to open a company here can read our list of EU countries with the lowest tax rates.
For complete information and offshore company setup, our team of experienced company formation agents can help answer any other questions.
Low-tax EU countries
The list below contains seven European countries with low or very low taxes for companies and individuals.
• Bulgaria: with a corporate income tax of only 10% for companies and individuals, this is an Eastern European country that also has lower costs for employment compared to other EU countries. Dividends from one Bulgarian company to another are not subject to dividend tax.
• Cyprus: Cyprus has a corporate income tax rate of 12.5%. Dividends received by a company that is a resident of Cyprus are tax exempt (both those received from a Cypriot company and those from a foreign company). The standard VAT rate is 19% with reduced rates of 9, 5 and 0%. These traits can be an advantage for those interested in offshore company formation.
• Ireland: the corporate income tax rate is 12.5% for trading income and, in general, dividends received by an Irish company from another Irish legal entity are exempt from the dividend tax.
• Hungary: another EU country with a very low corporate income tax rate of only 9%. Dividends received by a resident company are not subject to tax (an exception applies in case of dividends distributed by a controlled foreign company).
• Malta: the corporate income tax rate is 35%, however, a special participation exemption system and refund system bring this tax down to 5% and even 0% in some cases. Dividend tax exemptions apply only in some cases. The standard VAT is 18% with reduced 7, 5 and 0% rates.
• Liechtenstein: a 12.5% corporate income tax and no taxes for dividends received by a resident company. The standard VAT rate is a low 7.7% with reduced rates of 3.7% and 2.5%.
• Romania: the corporate income tax rate for micro-enterprises is very advantageous, at 1% or 3%. When the dividend payment takes place between two Romanian legal entities, it is not taxed at the level of the recipient; however, taxation is likely when it is received from a foreign company. The standard VAT rate is 19%, with two reduced rates of 9 and 5%.
Other notable countries that also offer a reasonable taxation regime for corporations and are worth mentioning include the following:
- Croatia: a standard corporate income tax of 18% and a reduced corporate tax of 12% for companies with an annual income below 3 million HKR; the standard VAT rate here is 25%, with two reduced rates of 12 and 5%.
- Latvia: a 20% corporate income tax rate, with a 25% rate applicable to profit distributions and a VAT rate of 21% with reduced rates of 12 and 15%
- Lithuania: companies are generally subject to a 15% rate, however, micro companies can be exempt from tax at the beginning and the benefit from a reduced rate of 5%; companies that earn income from commercializing scientific research are taxed at a 5% rate. The VAT rate is 21% with three reduced rates: 9, 5 and 0%.
- Poland: the standard corporate income tax rate is 19% here and a lower rate of 15% is available to small companies (however, this is subject to certain conditions and exemptions). The VAT rate is 23% with two lower rates of 5 and 8%.
- The Czech Republic: a 19% corporate income tax rate with a lower rate of 5% for investment funds and 0% for pension funds. The VAT is 21% with reduced rates of 10 and 15%.
Investors also have two notable options in terms of a complete free-tax regime for companies: The Isle of Man, with no corporate income tax for companies and Jersey, that has the same no-corporate tax for companies with a permanent establishment. Our agents can help investors who are interested in EU offshore company formation.
The corporate income tax in Europe
The corporate income tax is the main tax applicable to corporations across the EU. However, it is not the only one and investors need to consider the taxation regime as a whole when opening a company in a certain country. Other taxes for companies that are generally applicable throughout all of the states mentioned in this article include the stamp duty, the real estate tax, the social security contributions for employers.
The corporate tax compliance rules are set forth by each member state’s tax authorities. It is also important to note that investors will need to observe the conditions for registration for tax purposes upon incorporation and the filing requirements. As a general rule, the corporate income tax usually applies to the worldwide profits of a resident company. For branches in an EU country, the corporate income tax will apply only to the profits derived from the activities performed in that country.
Double taxation relief is possible across the EU via the numerous double tax agreements signed by member states. These allow for a single point of taxation for those companies that derive income from two or more member states.
What to consider when opening a company in Europe
Relocating the business to Europe or expanding to the EU market are two interesting options for corporations or entrepreneurs who are already established in other markets, like the United States for example. However, working with a local team of company formation experts has a series of notable advantages, especially in terms of EU law compliance.
You can contact our team of offshore company formation agents for complete company formation services in these low-tax locations or in other jurisdictions across the old continent.