Pay 0% tax in Europe: 2022 Tax Guide on Low tax European & EU Countries
Pictured above is Prague, Czech Republic - where freelancers and digital nomads can qualify for ~6% tax
Nearshore is the new offshore
When people think of tax havens, they generally think of locations like UAE, Puerto Rico, or Caribbean Islands. Most do not realize there are multiple low tax options within Europe and the EU, both for self-employed and companies.
Apart from low tax rates starting from a single digit, these Central & Eastern European, Balkans, and Caucasus countries also offer:
Many of these points rival traditional tax havens and likely even your home country.
Nearshore is the new offshore
When people think of tax havens, they generally think of locations like UAE, Puerto Rico, or Caribbean Islands. Most do not realize there are multiple low tax options within Europe and the EU, both for self-employed and companies.
Apart from low tax rates starting from a single digit, these Central & Eastern European, Balkans, and Caucasus countries also offer:
- Highly liveable with vibrant capital cities
- Have developed tech scene with an affordable and highly skilled labor force
- Ease of doing business
- Relatively easy for non-EU individuals to move to
- English is relatively widely spoken
- Personal freedom and safety
- Much cheaper to set up, incorporate and live than traditional tax haven
- Reputable jurisdiction with a wide range of banking options
Many of these points rival traditional tax havens and likely even your home country.
Who am I? I'm Jason, an investor and internationalisation enthusiast. I’ve lived in 6 countries, hold 4 citizenships and residencies, bought real estate in 3 countries and have hired in over 20 countries for my tech businesses. In the UK, I would pay an effective rate close to 40%, but I legally lowered it to an effective single digit tax rate by leaving and moving to Central & Eastern Europe.
Do you have to relocate to pay lower taxes?
Generally speaking, if your current tax bill is under €40k annually (inclusive of social and health contributions), you will need to personally relocate to benefit from lower tax options. If your current tax bill exceeds €40k, it can make financial sense for you to set up an offshore company, even without moving abroad. The latter comes with more complexity, as the offshore company must have genuine economic substance to ensure you do not run into issues with your home country’s tax authorities.
Low tax European & EU countries for self-employed, freelancers and digital nomad
If you are self-employed and earn below €50k annually, Poland, Czech, Georgia and Romania are great options, but you must physically move and stay for at least 183 days a year to qualify as a tax resident. In these countries, you would pay an effective tax rate of 6-10%, inclusive of social security contributions and with minimum accounting fees and complexity. In terms of visa and residency rules, Georgia has the most liberal of all followed by the Czech Republic. Whilst Romania and Poland are fairly easy to obtain residency in for someone earning €50k annually.
Lowest corporate tax countries in Europe & EU
If your company generates up to €300k / year, you can qualify for a 0-5% corporate tax rate in Lithuania. If your company generates up to €500k, you can pay 1% revenue tax in Romania. If your company generates over €500k, Bulgaria with its 9% corporate tax rate is a great option. If you are an IT company or produce IP (intellectual property) you can qualify for 0-3% corporate tax rates in Georgia and Serbia, though accessing these tax schemes require more sophisticated tax planning.
Check out our free tax guides for each country, updated for 2022:
More to come - subscribe to stay updated
Calea Victoriei in downtime Bucharest, Romania
Generally speaking, if your current tax bill is under €40k annually (inclusive of social and health contributions), you will need to personally relocate to benefit from lower tax options. If your current tax bill exceeds €40k, it can make financial sense for you to set up an offshore company, even without moving abroad. The latter comes with more complexity, as the offshore company must have genuine economic substance to ensure you do not run into issues with your home country’s tax authorities.
Low tax European & EU countries for self-employed, freelancers and digital nomad
If you are self-employed and earn below €50k annually, Poland, Czech, Georgia and Romania are great options, but you must physically move and stay for at least 183 days a year to qualify as a tax resident. In these countries, you would pay an effective tax rate of 6-10%, inclusive of social security contributions and with minimum accounting fees and complexity. In terms of visa and residency rules, Georgia has the most liberal of all followed by the Czech Republic. Whilst Romania and Poland are fairly easy to obtain residency in for someone earning €50k annually.
Lowest corporate tax countries in Europe & EU
If your company generates up to €300k / year, you can qualify for a 0-5% corporate tax rate in Lithuania. If your company generates up to €500k, you can pay 1% revenue tax in Romania. If your company generates over €500k, Bulgaria with its 9% corporate tax rate is a great option. If you are an IT company or produce IP (intellectual property) you can qualify for 0-3% corporate tax rates in Georgia and Serbia, though accessing these tax schemes require more sophisticated tax planning.
Check out our free tax guides for each country, updated for 2022:
More to come - subscribe to stay updated
Calea Victoriei in downtime Bucharest, Romania
What to do with your offshore company's profits
Apart from re-investing profits within the core business, here are some options of what you can do with your company’s profits:
Or if you want to avoid paying dividend tax:
How to legally get around CFC (Controlled Foreign Corporation) rules
CFC rules exist in nearly every developed country. You cannot simply set up and run your income through a foreign company, whilst continuing to live and work in your home country. You either move yourself (change of personal tax residence) or build economic substance in the foreign entity.
Economic substance means that in the event of a tax audit, you can demonstrate that the foreign entity engages in genuine business activity and does not just exist purely for avoiding taxes in your home country. This can include hiring a local Director and local employees, as well as renting a local office.
The local talent pool is just as interesting as tax savings
But hiring local employees shouldn’t be seen as a burden for ticking the CFC box. In fact, you can kill two birds with one stone by satisfying CFC requirements whilst hiring much more competitively.
In Central & Eastern Europe, the Balkans, Baltics, and the Caucasus - you can access local talent with the same level of skills as in Western countries, but for a 1.5-3x discount and oftentimes with a stronger work ethic. This can work from customer support and operations function to product, to sales and marketing as well as design and technical roles.
Warsaw's business district in Rondo Daszyńskiego, where Google spent $800 million on expanding its offices in 2022:
Apart from re-investing profits within the core business, here are some options of what you can do with your company’s profits:
- Withdraw it to your personal account and pay a dividend tax. The exact rate depends on the tax treaty signed with your home country. An idea would be to accumulate profits within the company and pay out dividends in the future - when you move to a country that does not tax dividends or foreign income. This can work with a large range of countries, from Portugal to Thailand.
Or if you want to avoid paying dividend tax:
- Spend funds on mid to large ticket ' business-related expenses’, the exact definition of ‘business-related expenses’ is quite broad, and depends on the jurisdiction, but it can be fairly flexible. You can electronics, software, and even cars - so long as it can be justified as business related.
- Reinvest company funds into local real estate, both residential and commercial. In several Central & Eastern European locations, you can realistically obtain target annualized returns of 10-18% (rental yield plus appreciation).
- Reinvest company funds into P2P loans, stocks, crypto, and precious metals. Incorporating in Lithuania, Romanian or Bulgarian means you’ll have a reputable EU company. This gives you access to a range of EU-regulated P2P investing platforms, where you can typically earn 10%> on real estate backed loans. You can also open brokerage and crypto trading accounts, as well as precious metal vaults, on behalf of your company. This can come with additional asset protection and tax benefits.
- Make angel investments directly from your company. Let’s say you invest $10k and the investment does a 20x. You have a capital gain of $190k. In most 'developed' countries, you will be taxed at an effective rate of 40% meaning a $76k tax bill. Now imagine you made this investment using a Romanian company with a 1% revenue tax, your tax bill would be $200!
How to legally get around CFC (Controlled Foreign Corporation) rules
CFC rules exist in nearly every developed country. You cannot simply set up and run your income through a foreign company, whilst continuing to live and work in your home country. You either move yourself (change of personal tax residence) or build economic substance in the foreign entity.
Economic substance means that in the event of a tax audit, you can demonstrate that the foreign entity engages in genuine business activity and does not just exist purely for avoiding taxes in your home country. This can include hiring a local Director and local employees, as well as renting a local office.
The local talent pool is just as interesting as tax savings
But hiring local employees shouldn’t be seen as a burden for ticking the CFC box. In fact, you can kill two birds with one stone by satisfying CFC requirements whilst hiring much more competitively.
In Central & Eastern Europe, the Balkans, Baltics, and the Caucasus - you can access local talent with the same level of skills as in Western countries, but for a 1.5-3x discount and oftentimes with a stronger work ethic. This can work from customer support and operations function to product, to sales and marketing as well as design and technical roles.
Warsaw's business district in Rondo Daszyńskiego, where Google spent $800 million on expanding its offices in 2022:
Would you like to see whether you or your business can legally pay less tax through offshoring? Schedule a 1-on1 strategy call with me, or check out services offered.
See also
Jason Wong Founder, Flag Ventures I grew up in Hong Kong & the UK, having spent over 10 years in each country. I first visited Eastern Europe in 2015 and saw the contrast between a place where the best days are ahead vs. the ‘developed world’ which is in continuous decline. Over the past 7 years, I’ve lived in 4 different countries, worked on various tech ventures, and co-founded a VC backed startup with a 100+ headcount. I hold citizenships and residencies in 4 countries. In the UK, I would have been taxed at an effective rate of around 40%. By moving to lower tax countries, I lowered my effective tax rate to single digits. I've purchased real estate in 3 different countries and have done dozens of fix and flip real estate deals. I've built out my own high-yield rental real estate portfolio, check it out here. |