Anyone considering starting a business in the European Union (EU) will find it beneficial to identify countries with the lowest tax rates to help with profit margins. Generally, the average tax rate in Europe has been decreasing. Despite being at 31% in 2000, it has now decreased to 21.7%. You can see the latest data on Corporation Tax rates in the UK online.
Corporate Income Tax (CIT) refers to the amount you’ll need to pay on the income from a permanent establishment (PE). This is focused on PE in the country and excludes foreign sales. It is the biggest tax you’ll have to pay, so looking out for opportunities in this area can be very beneficial. Depending on the country, there may be varying levels of CIT for different business sizes. Corporate income tax sits alongside other types of business tax, including VAT tax and capital gains tax.
When examining CIT across countries, it’s crucial to consider the wider picture. For example, where CIT is low in the country, other types of business tax could be significantly higher. It’s about balancing what works for your business. You are also likely to need residency in a certain country before you apply for business licencing and instigate a PE. It may be beneficial to consult with tax lawyers to get a more profound overview and ensure you’re proceeding lawfully.
This goes without mentioning a consideration for other fixed and variable business costs you’re faced with. Overheads could become troublesome if you don’t proceed strategically. From research and development (R&D) to manufacturing, certain industries may be more attractive to entrepreneurs in particular countries, depending on the economic landscape over there.
Here’s what you need to know.
5 countries with the low business tax rates in Europe
As a point of comparison, CIT in the UK is currently 19%.
Hungary (9%)
Business sectors that are attractive in Hungary include:
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- Manufacturing
- Healthcare
- IT
- Renewable energy
- Tourism
- Research and development
Hungary currently leads the way on income tax rate levels. Here, businesses pay a flat rate of 9%. It’s worth mentioning, however, that VAT (27%) is higher than the average across the EU – some countries have VAT tax as low as 25%. On top of this, local municipalities can levy a local business tax (LBT), which varies across the country. This can be up to 2%. So long as you have a PE that creates profit, you could be subjected to this local tax.
Ireland (12.5%)
Business sectors that are attractive in Ireland include:
- Farming
- Management consulting
- Fintech
- Food industry
- Pharmaceuticals and biopharmaceuticals
- IT
Although Ireland has one of the lowest CITs in Europe, business owners should bear in mind that this is expected to rise to 15%. As well as this, capital gains tax is 33% and VAT is 23%.
Lithuania (15%)
Business sectors that are attractive in Lithuania include:
- Fintech
- Security
- Tourism
- Manufacturing
Lithuania not only has lower CIT, but it also allows businesses to apply for a reduced rate between 0% and 5%. This is granted if a business has a small amount of employees or earns less than a particular amount each year. Capital gains are considered to be part of a company’s conventional taxable income and match the CIT rate. Meanwhile, VAT is 21%.
Czechia (19%)
Business sectors that are attractive in Czechia include:
- Aviation
- Biotech
- Engineering
- Healthcare
- Telecommunications
There isn’t a separate capital gain tax in Czechia, instead, it forms part of the aggregate individual income tax base. This depends on PIT rates that vary depending on the level of gross income within a company. VAT is 21%. However, VAT can be reduced for goods and services such as social housing construction, food shopping and more.
Slovenia (19%)
Business sectors that are attractive in Slovenia include:
- IT
- Pharmaceuticals
- Automotive
- Energy
- Food industry
A CIT of 19% is applied to businesses of all sizes in Slovenia. Meanwhile, capital gains tax is 27.5% and VAT is 22%. It’s worth noting that some companies are able to request a tonnage tax to replace CIT, however, you need to meet strict standards and criteria. For example, it tends to go to shipping companies involved in international shipping. If you operate in this field, you could benefit from this through a simpler tax arrangement. It can also save you money.
By contrast, some of the countries with the highest levels of CIT include Portugal (31.5%), Germany (29.94%) and France (28.41%).
