In this guide, we’ll explore the most tax-friendly countries in Europe.
Europe is a continent renowned for its rich history, diverse cultures, and economic stability. Unfortunately, many countries in Europe have high-income taxes.
Despite Western Europe being pretty costly, some countries are better in terms of taxes.
Whether you’re an entrepreneur, a digital nomad, or simply someone looking to stretch your financial wings, understanding where your money can go the furthest is crucial.
We have done our research and put together the most recent updates on the tax-friendly countries in Europe, so make sure to read until the end.
Table of Contents
- Tax Friendly Countries in Europe – Overview
- 10 Most Tax Friendly Countries in Europe
Tax Friendly Countries in Europe – Overview
Let’s start this guide with some frequently asked questions about taxes in Europe, which we’re confident you’ll find useful.
What are the Countries With the Lowest Taxes in Europe?
Europe hosts several countries with favorable tax regimes, attracting expats from all around the world. Andorra stands out for its low income and corporate tax rates, with a maximum of 10%.
Bulgaria offers a flat 10% rate for both personal and corporate income, while Cyprus is known for its corporate tax of 12.5% and has progressive personal income tax rates.
Georgia offers attractive tax rates for individual entrepreneurs and IT businesses, and that is unbeatable. Other notable mentions include Gibraltar, Liechtenstein, Malta, Monaco, and Montenegro, and we’ll go through those below in the main section.
How Does Residency Status Impact Taxation in Europe?
Most European countries tax residents on their worldwide income, while non-residents are typically taxed only on income sourced within the country.
The criteria for tax residency vary, often based on physical presence or the center of economic interest. For instance, spending more than 183 days in a country usually leads to tax residency.
This status can significantly affect tax obligations, with residents often having access to more tax credits and exemptions but also facing broader taxation on global income.
Can Non-EU Income be Taxed in Europe?
Generally speaking, European countries with a worldwide income tax system will tax residents on their global income, including that from non-EU sources.
How Stable are the Tax Policies in Europe?
Tax policies in Europe tend to be relatively stable, but they can vary based on economic conditions, political changes, and international agreements.
EU countries often adjust their tax policies to align with EU directives and to remain competitive in attracting foreign investment.
Non-EU countries like Andorra and Monaco have more autonomy in setting their tax policies, which they often use to create favorable tax environments.
10 Most Tax Friendly Countries in Europe
Now that you have a better idea about taxes in Europe, let’s discuss the main topic of this guide, the tax-friendly countries in Europe.
Of course, moving to a tax-friendly country is a great start to reducing taxes, and you’ll want to read until the end for all the options!
Known for its duty-free shopping, Andorra is also a tax haven nestled in the Pyrénées between two high tax territories, Spain to the south and France to the north.
Andorra has no wealth tax, no gift tax, no inheritance tax, and only charges capital gains tax assessed on the sale of Andorran real estate.
Before 2015, the country did not collect an income tax but eventually succumbed to pressure to institutionalize an income tax system from the European Union (of which it is not a member).
The income tax rates vary from 0% to 10% and take effect once income exceeds EUR 40,000. There is also a generous exemption of EUR 24,000. Corporate tax rates, on the other hand, vary from 2% to 10%.
Bulgaria has one of the lowest personal and corporate tax rates within the EU at a flat rate of 10%.
The country does not impose a capital gains tax on profits from investments or stock market trading in the EU, however, there is a 10% capital gains tax on profits from the sale of a property.
Bulgaria is also open to foreign investors and those foreigners who wish to start a company in Bulgaria can do so with no special requirements other than going through the regular registration process.
The country is definitely a low-cost country in Europe where your income will last longer.
Cyprus is a country that has one of the lowest corporate tax rates in the EU at 12.5%.
There is no inheritance tax in Cyprus. If you plan on spending your retirement in Cyprus, you’ll be pleased to know that foreign pension income receives a special treatment of a flat tax rate of 5% or at normal personal income tax.
Although the normal personal income tax rate starts at 20% and rises progressively to 35% there are many tax exemptions and tax deductions available depending on your type of income and that you aren’t considered domiciled in Cyprus.
There are tax exemptions on employment income generated overseas; Tax Exemptions on Dividend and Interest Income; and Tax Exemptions on Capital Gains.
While it’s not part of the tax free countries in Europe, Georgia is pretty close.
In fact, individual entrepreneurs in Georgia can enjoy as low of a tax rate as 1% on their service fees if they meet certain criteria set by the law.
Further, Individuals are not taxed on their foreign source income in Georgia. However, Georgia has its own definition of what is seen as foreign source income.
Georgia also provides special tax incentives for IT businesses as the country tends to develop the IT field and become an IT hub in the region.
There are 2 special tax statuses available for IT companies to enjoy the following tax benefits: one at 0% corporate income tax and the other at 5% corporate income tax.
Gibraltar has a low tax policy, and the country offers many advantages from a taxation point of view to foreign investors who open a company here.
Gibraltar only taxes income. It has no wealth taxes, gift taxes, inheritance tax, capital gains tax, or tax on bank interest.
Personal taxes are low across the board, with an effective rate of income tax of only 25% on all incomes up to £500,000.
All companies in Gibraltar pay only 12.5% tax on profits. However, only income which accrues in or is derived from Gibraltar is subject to corporation tax in Gibraltar.
Hungary distinguishes itself as a tax-friendly destination in Europe, particularly due to its attractive corporate tax rate of just 9%.
This low rate is a significant draw for businesses, from startups to multinational corporations, fostering a good investment environment.
The country also offers a simplified personal income tax regime with a flat rate of 15%, which is beneficial for individuals, especially higher earners.
Despite its relatively high Value-Added Tax (VAT) rate of 27%, Hungary counters this with specific exemptions and reductions for certain goods and services.
Liechtenstein has one of the lowest corporate tax rates in Europe at 12.5%. The country’s flexible and inexpensive incorporation policies have attracted many holding companies to register in its jurisdiction.
The highest imposed tax rate in Liechtenstein is 8% for individuals making over CHF 200,000 (USD 219,000).
However, some local communities within the country levy surtax on the national tax which raises the effective tax rates from 2.5% to 22.4% across the income brackets.
In Liechtenstein, there are no inheritance, estate, or gift taxes. Capital gains from the sale of shares in domestic or foreign corporations are tax-exempt.
Malta does not have taxes on gift, inheritance, and, in some cases, on property.
The corporate tax in Malta is 35%, but the tax rate on dividends and royalties is 0%. However, due to an imputation-based taxation system, the effective corporate tax rate can be lowered down to 5%.
On paper, Malta charges a 35% tax on personal income. However, Residence permits for executives and high-net-worth ex-pats allow significant tax allowances where the maximum income tax rate is only 15%.
The general principle of taxation in Monaco is the total absence of any direct taxation, with no personal income tax in Monaco and no corporate income tax for companies operating in the Principality.
In this respect, individuals resident in Monaco do not pay any tax in Monaco, as their personal income is taxed at 0%. The exception is French citizens who have to pay taxes in France even though they live in Monaco.
There is no taxation on investment income, capital gains, dividends, or income as an employee, freelancer, or director.
Certain companies that derive more than 25% of their turnover from outside do in fact attract a 25% corporate tax.
Montenegro’s personal income tax rate ranges from 9% to 11% and corporate income tax rates are at 9%, the lowest rates in Europe. It also has a 9% dividend tax and 9% capital gains tax.
It’s also worth noting that Montenegro municipalities charge a surtax on your income at 15% of what you paid in taxes to the federal government. Another exception to the flat rate is that non-residents pay a 5% tax on interest income.
It’s worth noting that a newly established company is exempt from CIT if they are exclusively operating in the underdeveloped northern areas of Montenegro.
People often think that in order to have a low tax bill you need to find refuge on a far-away small Caribbean island. However, we’ve shown in this article that in fact, you can find many low-tax countries in Europe.
Some of these countries provide low-income taxes and corporate income taxes, and others have no capital gains taxes at all.
Whether you’re a freelancer, a small business owner, or a high-net-worth individual you can be certain to find low-tax options and even tax free countries in Europe.
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