Before starting your own business or getting a job in the EU, you need to study the tax system in detail. Wages and living standards in Europe are really high, but at the same time taxes can completely dash all your hopes for a bright future. In this article, we will analyze the tax systems of European countries in comparison with Georgia.
Tax systems of European countries
| Country | Income tax | Dividend Tax | VAT | VAT turnover | Personal Income Tax | Social contributions | Withholding tax | Royalty |
|---|---|---|---|---|---|---|---|---|
| Lithuania | 5-15% | 0-15% | 21% | $256000 | 20% | 30,98-31,7% | 10% | 10% |
| Latvia | No | 20% | 21% | $47000 | 20-31,4% | 34,09% | 20% | 20% |
| Estonia | 20% | 0% | 20% | $47000 | 22% | 33% | 10% | 10% |
| Cyprus | 12,5% | 0-15% | 19% | $18000 | 0-35% | 20,3% | 10% | 10% |
| Germany | 30-45% | 25% | 7-19% | No | 0-45% | 17,85% | 25% | 15% |
| Austria | 25% | 25% | 10-20% | No | 0-50% | 7,65% | 10-25% | 20% |
| Spain | 25% | no for LE | 21% | No | 19-45% | 28,3% | 21-24% | 21% |
Lithuania
Lithuania attracts entrepreneurs from Georgia because of its friendly business policy and relatively low taxes. It is very simple and inexpensive to register a business in the country, and one of the main advantages for residents of the post-Soviet countries is the fact that there is practically no language barrier since they speak Russian and English in Latvia. As in most progressive countries, almost all business processes can be done online.
Profits are taxed 15%. But there is a preferential rate of 5%, this applies to companies with a staff of at least ten employees and an income of no more than € 300,000 per year. Dividends paid on the distribution of profits are taxed at 15%, but there is preferential treatment for holding companies.
The VAT rate is 21%, but there are preferential categories of goods and services to which rates of 9%, 5%, or 0% are applied.
The peculiarities also include the fact that on the last day of the tax period one shareholder owns 100% of only one company, and/or simultaneously owns no more than 50% of shares in another company, individually or jointly within one group of shareholders.
Lithuania has agreements on the avoidance of double taxation with 56 countries of the world, including Georgia. But there are special conditions, for example, 5% of the gross amount is not exempted under the Agreement when paying dividends if the beneficial owner is a company that directly owns at least 25% of the capital of the company paying the dividends and the value of this investment is at least 75,000 US dollars.
Latvia
Latvia, as another country in Central Europe, is quite close to Georgia and in this regard, there is close economic interaction between the countries. Many entrepreneurs from Georgia consider Latvia as a location for their business, and vice versa businessmen from this Baltic country working in the IT field often decide to acquire a virtual office in Georgia. In terms of the simplicity of business registration and the minimum authorized capital at the time of the foundation of the company, the countries are also very similar, but there are significant differences in the tax system.
It is much more difficult for small businesses that pay a flat tax of 15%. Micro-enterprises subject to this tax include businesses with a turnover that does not exceed $ 47,000 per year. But they are exempt from salary and income taxes.
When companies distribute profits and pay dividends, the tax is 20%, and on retained earnings - 0%. It is important to know that the amount of tax on dividends will depend on the recipient's residence status.
VAT in Latvia is 21%, but for some types of goods and services - 12% and 5%. When transactions are made within the borders of the European Union, the value-added tax is 0%, which also applies to some services that Latvian companies may provide to third countries.
Under the agreement on the avoidance of double taxation, there are three main taxes applicable to Lithuania:
- Income tax (in fact, it is a tax on dividends) of organizations;
- Personal income tax;
- Property tax.
Georgia has a different procedure (due to the difference in the tax systems of the countries):
- Corporate income tax;Personal income tax;
- Real estate tax of organizations;
- Real estate tax of an individual.
Estonia
Many countries, including Georgia, follow the Estonian example in terms of taxation. This Baltic country is leading in terms of business friendliness and IT development. From registering a business to contacting government agencies, everything can be done online. The cost of running a business is low and it is very easy to obtain a residence permit. The benefits do not end there, the most important thing is taxes:
There is no tax on retained earnings at all, and on distributed earnings, it is 20% (from 2020, in some cases, a preferential rate of 14% may apply). This means that the income tax itself is paid only when the company has decided to distribute dividends among its owners.The value-added tax rate for some goods and services is 0% and 9%. But there is also a standard rate, which is 20%.Estonia has agreements on the avoidance of double taxation with 60 countries of the world, including Georgia.
Cyprus
As soon as Cyprus joined the European Union, the tax system and accounting rules had to be significantly changed, which made the country a former dubious offshore low-tax jurisdiction with an excellent reputation and a country with one of the lowest corporate tax rates in the EU equal to only 12.5%.
Non-resident entrepreneurs in Cyprus can count on the exemption from income tax. It is important to understand that this is only if the business is registered in Cyprus, but the company does not operate in the country.
The value-added tax rate ranges from 5% to 19%. But if a company provides its services and goods to non-residents of Cyprus, then it can be exempted from VAT.
An interesting fact about the tax residency of Cyprus in relation to individuals and legal entities who are not citizens of the country. If you, becoming a tax resident of Cyprus, receive only passive income in the form of dividends or royalties, then you can count on exemption from income tax for 17 years. You become a non-domiciled resident.
Cyprus has agreements on the avoidance of double taxation with 65 countries of the world, including Georgia.
Germany
The tax systems of European countries are distinguished by their complexity and progressive scale of income tax, and Germany can rightfully be called the country with the most complex tax system. When calculating your taxes, a large number of factors will be taken into account: how many jobs do you occupy, do you have a family and children, and of course the number of earnings itself. These factors determine which of the 6 'tax classes' you will be assigned.
Income tax in Germany is progressive, which means: the more you earn, the more you pay% tax - from 19% to 43%.
- Incomes above 9000 € —19%;
- Income from 9000 to 13 996 € (27 992 € for a couple) — 24%;
- Income from 13 996 € to 54949 € (109 898 € for a couple) — 42%;
- Income from 54949 € to 260532 € (521,046 € for a couple) — 43%.
It is important to understand that this is only a tax on personal income, in addition to which there are many others. For example, VAT is levied on any service for which a businessman receives payment. VAT in Germany has two rates of 19% and a preferential rate of 7%.
Germany has agreements on the avoidance of double taxation with 65 countries of the world, including Georgia.
Austria
Austria is one of the most developed countries in the world with rather high taxes reaching 50%. This country has a Euro-continental tax model, where the main contributions are for the medical and educational sectors, as well as the social sector.
Personal income tax in Austria really reaches 50%, but if your earnings do not exceed 11,000 €, then you are exempt from payment. Earnings over 11,000 € and up to 25,000 € are taxed at 36.5%, over 25,000 € and up to 60,000 € are taxed at 43.21%, and just over 60,000 € are taxed at 50%.
The standard rate of value-added tax in Austria is 20%, but for special categories of goods and services, it is 10% or 13%. In Austria, companies are only subject to a flat corporate tax of 25%.
Austria has agreements on avoidance of double taxation with 91 countries of the world, including Georgia.
Spain
Since Spain has the youngest taxation system in the European Union, it completely repeats the positive experience of other countries with a progressive scale of income tax. Personal income tax is calculated in the range from 21% to 52%, but if the income does not exceed 22,000 €, then it is not subject to this tax. It is important to know that there are still tax deductions and benefits available for those with mortgages, children, or dependents.
- Income up to 12 450 € — 19%;
- Income from 12 450 € to 20 200 € — 24%;
- Income from 20,200 € to 34,000 €— 30%;
- Income from 34,000 € to 60,000 € — 37%;
- Income from 60,000 €— 45%.
VAT is 0%, 4%, 10%, 21% depending on the product category.
The tax on the activities of enterprises ranges from 25% to 30%; it is taxed on the income of legal entities. But if the company has been operating for less than 2 years and its turnover is less than 1 million euros, then this tax is not paid.Spain has a double taxation treaty with Georgia.
The tax systems of European countries are complex and have many nuances, in order to know whether you can avoid double taxation in your particular case or other details regarding your business in these countries, it is better to seek expert advice.