7 Facts That You Should Know For The Taxation System in Europe
Whether you are planning to move to a country in Europe, set up a business there or start working abroad, there are a few things to bear in mind regarding European tax law. Here are seven of the most important facts you need to understand before successfully doing any business abroad.
1. You have a right to work in any EU member state, but will be taxed like a local.
Since the conception of the EU, one of the major changes for every country involved has been the freedom of movement of workers. You do not have to apply for any sort of visa or work permit to work in another EU member state, but don’t expect to be treated any different from the local workers there. Income tax rates vary from one country to another, being as low as 5% in some places, like Bosnia and Herzegovina, or as high as 56.6% in Sweden.
2. You may have to pay social security / national insurance out of your income, or healthcare may not be free.
Not every country in the EU has free national healthcare. Many countries will take a tax out of your wages towards healthcare, but don’t presume that means you will be treated for free. The 27 member states of the EU plus Iceland, Liechtenstein and Norway are all covered by the European Health Insurance Card, which you will need to obtain before you travel. This will entitle you to free healthcare where the country has a national health service, or reduced cost healthcare in other countries.
3. EU member states have very varying rates of corporate tax.
At the moment Belgium charges 34%, whereas Ireland charges 12.5%. If you are considering starting a business abroad or expanding your business into another country, you should check your liabilities and work these into your feasibility studies before making any costly decisions.
4. Member states also have variable VAT rates.
VAT paid on goods and services can be very different from one country to another, but there are some restrictions since the EU placed caps on the maximum and minimum member states are allowed to charge. Still, the rate can vary from as high as 27% in Hungary to as low as 15% in Luxembourg, so take this into consideration when weighing up your finances.
5. Europe still harbours some tax havens.
Yes, the elusive tax haven does exist, and many are well used by frugal billionaires around the continent. A good example is Andorra, where workers are not charged any income tax, there is no Capital Gains Tax, death duties or sales tax. Added to this there is a low import tax of around 2 – 5%, making it a popular place for online businesses and high rolling investors. Interestingly, Andorra also has the highest life expectancy of anywhere in Europe – an impressive 83 years!
6. Importing and exporting may not be as cheap as you think.
Goods that are exported to non member countries are not charged any VAT at the point of sale, but there may be VAT to pay upon arrival in the home country. Goods imported to the EU must have the applicable VAT paid as soon as the goods are imported so as to put them on an even keel with the local goods.
7. Road tax is a complicated issue.
If you are going to be using local cars, operating vans or haulage vehiclesor moving your own car to the continent, you will need to do your homework as to the applicable road tax where you are going. Also referred to as a vignette, the amount payable and point at which it should be paid varies wildly across the EU, and if you fail to meet the legal obligations you could be facing a fine of many hundreds of Euros. Check it out with the local tax office before you go to make sure you aren’t breaking the rules.