The Dutch newspaper “Het Financiële Dagblad” (The Financial Daily) has recently conducted research showing that the average amount large EU enterprises spend on corporate tax equals 23.3 percent of their profit. The authors analyzed the tax liabilities of 25 companies - the biggest on the Stock Exchange in Amsterdam - including Unilever, Heineken, ING Group and Philips, and reviewed the corporate taxes they pay in various European countries.
The analysis showed that the rates of corporate tax differ significantly among the EU countries. While Maltese, French and Belgian companies pay between 33 and 35 percent tax on their corporate income, the liabilities of Bulgarian, Lithuanian, Latvian and Irish businesses amount to 10 to 15 percent. Some countries outside the European Union, e.g. the United Aram Emirates, Guernsey and the Cayman Islands do not collect taxes on corporate income. According to the newspaper the highest rate of corporate tax (55 percent) applies to companies involved in the gas and oil industry in the United Arab Emirates.
Top 5 of the tax-friendly countries in the EU
The research results show that the top five low-tax destinations for large companies in the European Union are as follows:
1. Bulgaria
For quite some time the country has been popular with its convenient fiscal policies. The corporate income tax flat rate is the lowest in the European Union and is fixed at 10 percent. Personal income is taxed at the same rate. Furthermore, Bulgaria attracts entrepreneurs with its strategic location, developed business infrastructure and low costs for labour. Read here on Bulgarian company types.
2. Ireland
The normal rate of the corporate tax in the country is 12.5 percent on income from trade and 25 percent on income from other sources. The local taxation system is a good example of encouraging competition and boosting of investments. The tax on personal income is progressive in the margins of 20 to 40 percent.
3. The Netherlands - The Western European alternative with a solid reputation
The Netherlands comes in on a respectable 6th place with a corporate tax of 19 percent. (The Dutch corporate tax rate has been lowered in 2021). The Netherlands is known as a global trading hub with an international workforce that is 93% fluent in English. The reputation of the country, combined with its tax treaties, have lead to the biggest firms in the world to establish their headquarters in the Netherlands. Amongst such companies are Apple, Starbucks, Google and many other fortune 500 companies.
The Netherlands is lowering the corporate tax rate in the coming years.
Read more on corporate income tax in the Netherlands.
4. Latvia
The country collects corporate income tax at 15 percent flat rate. In January, 2017 it introduced a lower rate of 12 percent for micro enterprises to support companies with low turnover that meet particular requirements. Latvia also attracts investors with its skilled workforce and developed transport infrastructure. The most popular fields for investment are logistics, transport, IT, life sciences, renewable energy and woodworking. The tax on personal income is 23 percent.
5. Lithuana
A flat tax rate of 15 percent applies for both corporate and personal income generated in the country. Lithuania is considered the second most favourable European state for investors. Also, its economy is rated in the European top 5 for fast growth. Lithuania is popular with its R&D sector, outstanding digital infrastructure, low labour costs and qualified specialists.
It is easy to start a Dutch business, but every entrepreneur has choices to make. First of all, one must choose the legal entity that will operate the business; this determines the taxes he or she will have to pay. The main question is whether to register a Dutch sole proprietorship (one-man company or Eenmanszaak in Dutch) or a BV (limited liability company or besloten vennootschap in Dutch). Which one is better?
To consider to open a Netherlands sole proprietorship, you would need to first be a tax resident in the Netherlands. It is not recommended for foreign residents. The Dutch BV can be opened by a foreign resident.
The difference between a Netherlands sole proprietorship and a BV
The best solution is the one that fits the aims of the business. The Dutch BV is a company with limited liability (LLC). This option is attractive, since, in theory, the responsibility of the company members is restricted. But is this really the case in practice? Is it possible to operate a business without carrying private responsibility for its outcomes? Not according to us. The general conditions with respect to liability insurance may actually even out the differences between the BV and the sole proprietorship.
Having registered as a BV, you show your clients and partners that you own a reliable business, even if you are still operating alone. The sole proprietorship in Netherlands is frequently associated with a business operated by a single person, but this perception is incorrect. The business’ capital is indeed owned by a single person, but the entity may have numerous employees.
The BV has a series of fiscal rules involving the shareholder(s) and managing director(s). They regulate the distribution of salaries, the use of funds and other matters that can reflect significantly on the final tax liabilities.
The sole proprietorship has few rules. The whole profit of the company is subject to tax, but significant credits are available. Therefore an entrepreneur can generate taxable profit of approximately 22 000 EUR per year and be exempt from income tax for the first 3 years after the company’s establishment. Subsequently, the threshold drops to 18 000 EUR. With BVs every earned euro is a subject to tax.
The BV offers more options than the Dutch sole proprietorship. for example, share transfer to another party if the business is sold. No tax on sales is due immediately for holding structures. Loan contracts can be concluded, internal pension obligations can be drafted and so on.
An entrepreneur can always switch from sole proprietorship to a BV in order to sell the company or take advantage of other opportunities.
