European countries with lowest income tax in 2024

Taxation in Europe basics

Taxation systems across Europe vary from one country to another, as each nation maintains its own set of fiscal laws and regulations. Nonetheless, there are commonalities in the types of taxes prevalent across many European countries

 The most common tax categories

Personal income tax stands out as the most prominent, as nearly everyone, regardless of the country, is subject to this type of tax. Europe's Income tax typically follows a progressive tax model, wherein higher earnings are taxed at higher rates.

An important point to consider here is that individuals may receive income from several countries, which may have tax implications in both countries. To address this, countries often have agreements to avoid double taxation.

In case you are thinking of moving to another city and are looking for the best destination to settle in Europe, we recommend you to take a look at our dedicated article.

Lowest tax EU countries

Now that we have a foundational understanding of how the European tax system operates, we will explore some countries with low taxes in Europe. Given the multitude of tax categories, classifying countries based on all categories can be complex. An analysis per category simplifies this process, and platforms like Tax Foundation provide comparative analyses among different European countries in various tax categories. For instance, in the income tax category for 2024, this platform ranks countries according to the highest tax bracket, resulting in the following graph.

Top Personal Income Tax Rates in Europe, 2024, source: Tax Foundation

Across Europe, several regions offer attractive tax rates. Eastern Europe boasts some of the EU's lowest flat income taxes, with Bulgaria at 10%, followed by Estonia and Latvia at 20% and 23% respectively. These countries, along with Hungary (15% flat tax) in Central Europe, also tend to have lower corporate tax rates than the Western European average. Central Europe's Czech Republic offers a progressive income tax system (15%-23%) with various deductions, while microstates Andorra and Monaco have 0% income tax for residents (with some exceptions in Andorra) but may tax businesses.

Andorra

Source: Pixabay

First on our list is Andorra, an idyllic mountainous country conveniently nestled between Spain and France, two nations with high taxes. While Andorra may not be the best in all tax categories, it does fare quite well in several.

Andorra is particularly attractive for individuals with capital gains or generational wealth, as there are no taxes on wealth, donations, or inheritances. The only capital gains tax applies to the majority of property sales in Andorra. Moreover, it’s one of the European countries with the lowest income tax rates. This tax was implemented in the country only a few years ago, in 2015, under pressure from the European Union.

The tax brackets are calculated based on annual income and apply a progressive rate

The corporate tax rate is also among the lowest compared to neighboring countries. Regulated by Andorra's Corporate Tax Law, it sets a maximum general rate of 10% on profits earned. This tax applies to all companies, regardless of legal form, size, or activity.

Hungary

Hungary. Source: Pixabay

Continuing our exploration of countries with low taxes in Europe, we have Hungary. The Hungarian government has undertaken significant tax reforms in recent years. Key modifications include an aggressive reduction in the general corporate tax rate and the implementation of a flat-rate tax as the sole income tax scale. These new taxation policies have made Hungary a highly attractive destination and have spurred economic growth.

Personal income tax in Hungary is among the most reasonable in Europe, under a flat tax model set at 15%, allowing individuals to pay the same percentage regardless of income level. Additionally, the application of this tax is subject to various rules that are notably advantageous for taxpayers:

• Individuals under 25 years old are exempt from income tax, providing significant tax savings for young workers, self-employed individuals, and entrepreneurs just entering the market.
• Families with three or more dependent children and mothers under 30 years old are also exempt from paying income tax.

Regarding corporate tax, before the 2017 reform, Hungary operated under a dual-rate system, with a 10% rate for the first 1.7 million euros of profit and a 19% rate for profits above that threshold. Since the reform, the new system simply requires a 9% tax on profits at the end of the fiscal year, making it the lowest corporate tax rate in Europe. However, in contrast to these low taxes in Hungary, the VAT stands at 27% of the taxable base of the product or service purchased, one of the highest if not the highest in Europe. 

Bulgaria

Bulgaria. Source: Pixabay

If you're seeking the country with the lowest taxes in Europe, look no further than Bulgaria. With a flat rate of 10%, Bulgaria boasts the lowest personal income tax rate in the European Union.

The corporate tax rate in Bulgaria is also 10%, making it the second-lowest tax rate in the EU after Hungary. Bulgaria also has tax treaties with several countries, potentially allowing certain international entrepreneurs to benefit from special tax treatment.

The standard VAT rate in Bulgaria is 20%, which applies to all goods and services not exempted or subject to a reduced VAT rate. There is a reduced VAT rate of 9%, generally applicable to hotel accommodation.

To obtain tax residency in Bulgaria, one must have a permanent address in Bulgaria, reside in the country for more than 183 days in 12 months, and have a center of vital interests (family, property, work, business).

Cyprus

Cyprus. Source: Pixabay

Cyprus, like most European countries, has a progressive income tax system, meaning the higher your earnings, the higher the tax rates. However, the advantage of Cyprus lies in its substantial amount of tax-free income. The first 19,500 euros are entirely tax-free, with tax rates then ranging from 20% to 35%, depending on income.

While Cyprus may not boast the most attractive income tax rates, it is one of the EU countries with the lowest tax rates for businesses, with a rate of 12.5%. Additionally, if the company produces products that qualify as intellectual property, this tax rate is reduced to 2.5%. Moreover, Cyprus taxation offers several other highly attractive advantages:

• Profits derived from the sale of shares and other securities are tax-exempt in Cyprus.
• 100% exemption on remuneration for salaried services provided outside Cyprus for more than 90 days in a fiscal year for a non-Cypriot employer.
• Pensions related to previous employment outside Cyprus are taxed in Cyprus at a flat rate of 5% for amounts exceeding 3,420 euros.
• 100% exemption on refunds of life insurance policies or authorized pension funds.
• Capital gains tax exemption on the sale of real estate located outside Cyprus.
• No inheritance, wealth, or gift taxes.
• Individuals benefiting from a trust are exempt from taxes in Cyprus to the extent that trust income is in the form of interest or dividends.
• Individuals benefiting from a trust are exempt from taxes in Cyprus to the extent that trust income is in the form of interest or dividends.

Romania

Romania. Source: Pixabay

If you're wondering, among all the countries in the European Union, which country has the lowest tax rates, look no further than Romania. Though Andorra boasts even more attractive rates, it's worth noting that Andorra is not part of the European Union. 

In Romania, individuals are subject to a flat 10% income tax rate. Additionally, there is no gift tax, inheritance tax, or wealth tax in Romania. Income from interest and distributed dividends is subject to an 8% tax rate, and the general capital gains tax rate is 10%.

The standard corporate tax rate is 16% for Romanian companies. While this rate is slightly higher compared to other EU countries, it still fares favorably. According to the Tax Foundation, Romania ranks 6th out of 32 countries. Regarding value-added tax (VAT), Romania recently reduced the rate to 9% for all food products, with a standard rate of 19%

Ireland

Ireland. Source: Pixabay

In Ireland income tax and the Universal Social Charge (USC) levy income earned by individuals in the fiscal year after the application of certain exceptions and exemptions. Employee taxes are withheld by their employer through the Pay As You Earn (PAYE) system and self-employed individuals are responsible for paying their own taxes through the self-assessment system.

Income tax in Ireland is slightly different from that of other countries, with only two brackets: 20% on income up to 40,000 euros annually and 40% thereafter. Then there's the Universal Social Charge (USC), initially introduced as a temporary measure to address the financial crisis in 2011 but has since been retained. However, USC is only payable if gross income exceeds 13,000 euros annually.  Once income surpasses this threshold, the corresponding USC rate is paid on all income according to the brakes:

• 0.5% up to 12,012 euros
• 2% from 12,012.01 to 25,760 euros
• 4% from 25,760.01 to 70,044 euros
• 8% for income over 70,044.01 euros
• 11% for self-employed income over 100,000 euros

Now, if you came to this article seeking tax-free countries in Europe, a 40% income tax plus USC is clearly not what you were looking for. However, we have good news for you: Ireland offers one of the lowest corporate tax rates in Europe.

Companies in Ireland are subject to a tax rate of 12.5%. This rate applies to companies tax-resident in Ireland, incorporated in Ireland, or managed/controlled from Ireland. This is a major draw for many multinational corporations, such as Apple and Google, who have established their European headquarters in the country.

Moldova

Moldova. Source: Pexels

Last but not least on our list of European countries with low-income taxes is Moldova, and although we place it at the end, it doesn't mean it's any less attractive.

In Moldova, personal income tax operates under a progressive system, where tax rates increase with income level, with a maximum tax of just 12% for the highest incomes. Corporate tax in Moldova is equally appealing, with an equivalent rate of 12%. The VAT in Moldova has a standard rate of 20%, with reduced rates for essential goods. Food, medicine, and books benefit from a reduced rate of 8%.

The ever-evolving landscape of European taxation means careful research is crucial for individuals and businesses seeking the best fit. Consider factors like tax residency, tax treaties, and future plans when making your decision. Consulting a tax professional can ensure you navigate the complexities and maximize your tax advantages within the legal framework.

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