All people and companies making money in a European country have to pay taxes. A foreign national becomes a tax resident in a European country after living there for more than 183 days. Consequently, foreigners living in Europe permanently also have to pay taxes there. Twenty-seven European countries form the European Union but each national state sets its own tax rates. Treaties on double taxation avoidance are in force if they exist.
Even though the EU does not have a uniform law that would regulate the taxation matters, it passes relevant directives from time to time. Below we discuss the types of taxes charged in European countries, the difference between personal and corporate taxes, and the requirements to those foreigners who would like to obtain tax residence in Europe.
Before we go on, however, we would like to give you a teaser. The table below lists the European countries that charge the lowest taxes:
Tax | Rate, % | Country |
Personal income | 10 | Bulgaria and Romania |
Corporate income | 9 | Hungary |
Standard VAT | 16 | Luxembourg |
Please follow the link if you want to find out about the European countries with the highest taxes.
Tax rates and taxable incomes are different in different European countries. The EU legislation sets some harmonized tax rates such as excises, for example. Payment of taxes is conditioned by the payer’s status and the origin of his/ her income. Companies pay taxes directly to the internal revenue agency of the country where they are located. Individuals can pay taxes in person but if they are salaried workers, the employer pays their taxes on their behalf. Tax scales can be fixed or progressive.
Types of taxes payable in Europe:
In some European countries, additional taxes are charged such as ecological taxes and transport taxes payable by car owners. In Austria, Germany, and Finland, parishioners have to pay a church tax.
As a rule, it’s enough to stay in a European country for 6 months to become a tax resident there. In some cases, however, the person has to have residential accommodations and some ‘vital interests’ in the country to qualify for tax residency. To let people avoid paying taxes in two countries at a time, the EU member states have signed treaties on avoidance of double taxation. In addition to that, many EU countries have similar agreements with national states outside the Union and outside Europe.
Not all types of income are taxed in the EU. For instance, if a person sells old clothes or old furniture, his/ her income is not going to be taxed in France. Similarly, a private tutor making less than 305 EUR per month is not taxed in the country. The following types of income are taxed in Europe:
Resident companies are taxed on their global income while foreign companies have to pay taxes only on the income made in the European country where they operate. Commercial companies have to make the following types of payments in Europe:
As you can see, the tax rates differ significantly in different European states and this factor should have a bearing on your choice of the country if becoming a tax resident in Europe is on your mind.
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