In this material we’re presenting a short summary regarding the statutory corporate tax rate in Europe. Rankings are separated in two groups – EU members and countries outside of the union.
Death & Taxes…
As Benjamin Franklin has said “two things are certain in todays’ life: Death and taxes”.
Developing business especially abroad is highly dependable on several very important factors. Among them of course are the corporate tax rates as part of the local state’s business environment.
Before delving into the rankings keep in mind several highlights:
Highlight 1: On average, European countries currently levy a corporate income tax rate of 21.7 percent. This is below the worldwide average – measured across 180 jurisdictions it was 23.54 percent (as of year 2021).
Highlight 2: EU countries have experienced a decline in corporate income tax rates in the past few decades. In 2000, the average corporate tax rate was 32.6 percent consistently decreasing to its current level of 21.7 percent.
Highlight 3: Bulgaria & Hungary have the lowest statutory corporate tax rates among the countries in the EU. In Bulgaria the tax rate is 10 percent while in Hungary it is 9 percent.
Corporate Taxes in Europe
As per the common practice European countries generate large amounts of their economic income through corporate income tax. Corporate income tax rates are determined by the very nation a company is based in (where they post-revenue) and their tax levy.
The EU nations and the OECD (Organization for Economic Co-operation and Development) work alongside for the systematization of the corporate income tax rates and economic policies. Part of their priorities is to ensure that certain states are not providing favorable taxation benefits to certain companies which is challenging due to the large discrepancies in how corporate income taxes are levied by member states. Also, there’re several well-known tax haven countries like Ireland and Luxemburg used by entities of many big multinational corporations. For example Apple and Google (Parent company Alphabet) have been beneficiaries of having entities in Ireland reduced corporate income tax rates.
Statutory corporate tax rate in Europe by country
Before going through the various corporate income tax rates in and outside of the EU, it is important to underline the difference between statutory and effective rates. In short:
1) The statutory tax rate is the rate imposed by law on taxable income that falls within a given tax bracket.
2) The effective tax rate is the percentage of income actually paid by an individual or a company after taking into account tax breaks (including loopholes, deductions, exemptions, credits and preferential rates, etc.)
Below is a list of statutory corporate tax rates by EU member states as of 2022 (descending order):
European nations that are not members of the European Union have the following statutory corporate tax rates:
A little addition – Personal income taxes in the European Union
For your information we’ve also added a short summary regarding the Personal income tax rates within the 27 EU members. It is good to know considering the taxes accompanying employees’ salaries for example.
N.B. Keep in mind that every country has its own policy and potentially additional taxes over the salaries. Such may be the case with length of service, mandatory insurance contributions, pensions fund, etc.
However currently we’re comparing the flat tax rate over personal income by EU member:
Business development, opportunities and taxes in Europe from outsourcing perspective
More & more western companies choose to outsource part of their operations in favorable locations with reliable vendors. In order to secure a stable performance at an overall lower cost compared to the their home location ( or in-house) organizations benefit from business arrangements with trusted outsourcing service partners who are experts in their professional and geographical field. This trend becomes even more enhanced due to the overall unfavorable business conditions the world is in since the pandemic and the accompanying economic crisis.
So when planning to expand via outsourcing (and not only) in Europe, take into account Bulgaria. It is a fine outsourcing destination for ITO, BPO and KPO services.
Bulgaria is a popular outsourcing destination for a reason. The country has a matured BPO sector, large talent pool, business culture similar to western countries, financial appeal and in terms of outsourcing location attractiveness – digital resonance. All those factors make it a highly sought-after destination for startups as well as large companies. There are numerous international organizations like HP, Coca-Cola, IBM, VMware who have established their operations in the Bulgarian market decades ago and continue to develop them.
The average corporate tax rate in Europe is under the current worldwide rate (23.54 percent). This puts many European countries among the list of favorable business destinations. However within the European Union the rate significantly varies. Values vary by more than threefold between some countries. Such example is the 35% tax rate in Malta versus Bulgaria and Hungary (10% – 9% corporate tax rate). European countries in the west have considerably higher corporate tax rates compared to the Eastern members of the Union.
This is one of the prerequisites for start-ups & Corporations to expand their operations in Eastern European countries. Locations like Bulgaria, Romania and Poland offer the business favorable conditions for development (especially in the outsourcing sector). Тhis is extremely important considering the challenges companies are facing due to the various consequences caused by the pandemic, the economic crisis and the military conflict in Ukraine. All of them are external major factors affecting the business environment globally.
Looking for an outsourcing service partner in Bulgaria? Our team has 10+ years of experience in providing a high-class services. We have the knowledge and expertise for establishing various operations in Bulgaria for local and multinational businesses under Agency contracting & Managed service models. If your organization is considering changes or structural innovations that may benefit from outsourcing operations, don’t hesitate to contact us. We’d be happy to help with the process.