One of the most important factors in deciding where to base one’s personal or business interests is the amount of tax charged by any particular country. Whilst we all accept that it is necessary to pay taxes to contribute to the countries we live and work in, it is sensible when considering citizenship or residency in another country, to take into consideration the amount of tax chargeable in that country, amongst all the other factors that contribute to an eventual decision.
Meanwhile, our guide to the countries with the lowest tax rates in Europe will help you start the process of deciding where your next citizenship or residency should be.
Andorra – This small principality between Spain and France (both of which have much higher tax) is a low-tax area with no wealth tax, inheritance tax, or gift tax. It only started charging income tax in 2015 but this is kept at a low rate (generally under 10%) with exemption until earning over 24,000 Euros and the top rate is only chargeable on income over 40,000 Euros. Capital gains tax is only charged on the sale of real estate in Andorra and corporation tax is between 2% and 10%.
Bulgaria – Within the EU, Bulgaria has one of the most attractive rates of personal and corporate tax rates, at 10% for each. Capital gains tax is also at 10% on the sale of property but is not charged if you work the stock market or have investments within the EU. Bulgaria has treaties with many other countries that can be beneficial to international business owners.
Cyprus – Cyprus has one of the lowest rates of corporate tax in Europe at just 12.5% for resident companies, while non-resident companies pay zero taxes. People who are tax residents pay income tax on their worldwide earnings while people who are not tax residents are only taxed on income that is Cyprus-based. Tax residents pay tax on earnings over 19,500 Euros at 20%, which rises to 35% for income over 60,000 Euros. Employees in Cyprus pay 7.8% of their earnings, while the employer pays 11.5%. The standard rate of VAT is 19% with a lower rate of 9% for groceries, books and hotels, while certain areas such as rent, exports and financial services are exempt from VAT.
Czech Republic – The Czech Republic has a flat rate of 15% for EU citizens starting a business there which, with the ability to apply a lump sum tax deduction instead of expenses, can be reduced to as little as 6-9% for self-employed business owners.
Republic of Georgia – Georgia has for the most part, a territorial tax system that does not include foreign-earned income. This makes it an attractive destination for anyone with a Georgian residency who earns income from abroad as profits will not be taxed in Georgia. Other taxes are low, with income tax being only 1% on income up to 500,000 Georgian Lari, which equates to about $145,00. There is no personal income tax for income derived from outside Georgia or from reselling cryptocurrencies. Corporate tax is 15% after any dividends have been paid and if the money is reinvested there is no tax charged. Tax exemptions exist for technology companies that provide services outside of Georgia and there are “free industrial zones” providing tax exemptions inside the country.
Hungary – Hungary’s low corporate tax rate of just 9% makes it an attractive destination for companies. Personal income tax is 16% of gross taxable income.
Lichtenstein – Lichtenstein has one of the lowest corporate tax rates in Europe at just 12.5% and favourable incorporation laws and tax benefits that have led it to be an attractive destination for people to establish holding companies. Income tax is low at just 8% for those earning over 200,000 CHF equating to $219,000. However there are some surtaxes that can raise this level of income tax. Other taxes are relatively low with VAT at 7.7%, real estate capital gains tax at 3%-4%, wealth tax at 4% on the fair market value of assets and a tax on any charity donations that would otherwise have reduced the amount of wealth tax paid. There is no inheritance, estate or gift taxes and no capital gains tax from the sale of shares in domestic or foreign corporations.
Lithuania – With a rate of corporate tax of 15% Lithuania is a good location for those with businesses. However, basic income tax from employment is 20%, rising to 32% for those on higher incomes, making the country slightly less attractive for those looking to work there rather than open a business.
Luxembourg – Luxembourg is tax friendly for businesses, particularly large companies. Dividends of many companies are not taxed in Luxembourg and capital gains are not taxed if the shareholder owns less than 10% of the company. Conditions are favourable for holding companies which allow international trade at minimal taxes. There is a basic 17% corporate tax rate with a 6.75% municipal business tax and a 1.19% contribution to an employment fund. Many large corporations such as Pepsi, Amazon and Apple, have subsidiaries in Luxembourg with special tax arrangements that ensure low rates. Companies resident in the country are taxable on worldwide income; non-resident companies are only taxed on local income.
Malta – Malta has a flat rate of income tax for foreign nationals of 15% on most sources of income, although Maltese nationals pay a top rate of 35% for the highest earners. Companies owned by foreigners can have a refund of 30% from the corporation tax of 35%, bringing their tax rate down to just 5%. Holding companies pay no corporate tax on dividends and capital gains earned by non-resident entities. Maltese residents do not pay tax on income derived abroad that is not brought into the country, or on foreign capital gains even if the income enters Malta.
Monaco – A member of the Schengen union though not the EU, Monaco’s stringent residency requirements do not make it easy for people to move there. However, there is no personal income tax and a rate of 25% for corporation tax.
Montenegro – Montenegro has favourable tax conditions with income tax, corporate tax and capital gains tax at a flat 9% each, making it an attractive destination for those looking to keep their tax commitment at a low rate. It is possible for foreigners who purchase real estate to gain an annually renewable temporary residence card. If they spend fewer than 183 days in Montenegro they will usually not be taxed.
Switzerland – Different types of Swiss offshore companies have numerous tax advantages. There is a standard rate for VAT for corporate profits at 8%, varying according to different cantons within the country, with reduced rates for hotels (3.5%) and basic food products (2.5%). Foreigners can either open a company in Switzerland, which will pay corporate income tax with the owner paying Swiss income tax, or a lower tax method is the Lump Sum Taxation Method or “taxation by expenditure” method. Under this scheme there would be a flat annual tax based on cost of living rather than income, with a minimum income of $150,000 depending on the canton the person resides in. Income tax for the highest earners can be lower than 10%. The country’s maximum tax rate is 11.5%.
Higher-Taxing Countries With Some Tax Exemptions
Denmark – Although Denmark has high income tax rates for those on generous incomes, it has a business tax scheme that makes it an attractive proposition for investors. The scheme allows for investors to establish a holding company in Denmark, essentially providing a tax-free facility for trading internationally.
Jersey (Channel Islands) – Like Denmark, income tax can be high for the highest earners, but tax conditions are favourable for businesses. There is no corporation tax for businesses operating in Jersey. However, financial services companies are excluded from this arrangement and have to pay 10% tax on profits. Other excluded businesses are utilities, rentals and development projects, which are taxed at 20%. Companies owned by foreigners but which are managed in Jersey with local directors are classed as resident in Jersey and subject to local taxes according to the nature of the business. Foreign-owned and managed businesses that run the business through a permanent tax residency in Jersey only pay taxes on the income from their Jersey “branch” according to the type of business.
Gibraltar – Gibraltar has a flat rate tax under its High Executive Possessing Specialist Skills scheme (HEPSS) which places a cap on the amount of tax that entrepreneurs pay on their salaries. They must earn a minimum of £120,000 per year, but will not pay tax on any earnings over this amount. They must also pay Gibraltar corporate tax. On an alternative visa known as a Category 2 visa, the applicant must purchase a home in Gibraltar and have a net worth of around £2 million to £2.5 million. Their tax is set at a minimum of £22,000 and a maximum of £28,360. Income tax rates range from 10% to 29% with a typical rate being 12.5%.
Portugal – Despite not generally being a low-tax country, Portugal has a ten-year Non Habitual Resident Tax Exemption that allows for those who qualify to pay zero income tax (for income not from Portugal) for ten years.
United Kingdom – While not generally a low-tax country, one particular group of residents can enjoy an annual flat rate of tax whilst living in London. This wealthy group have residency rather than citizenship and this “non-domiciled” status allows them to earn income from a foreign source and, as long as the money is kept out of the country, they are not taxed on that income. This can be free for up to six years, after which they will have to pay between £30,000 to £90,000 depending on how long they have been a resident. Their residency by investment will have cost them a substantial sum but they may find that the “non-dom” tax conditions more than make up for their initial investment.