By John Meyer, consultant in financial markets – Eurasia Business News, February 4, 2022 – Updated on March 29, 2023
Europe offers many attractive solutions for companies looking for developed markets with low taxes. Several European countries have lowered their corporate income tax rates to attract investors and develop their national economies.
Hungary (9 percent), Ireland (12.5 percent), Lithuania (15 percent) and Poland (19 percent) have the lowest corporate income tax rates.
The UK Government confirmed in March 2023 that the main rate of Corporation Tax levied on UK companies will rise from 19% to 25%. The rate of 19% will still apply to taxable profits up to and including £50,000. Taxable profits above this level will be taxed at a higher rate.
Remember that the amount of taxes a business ultimately pays on its profits depends on both the corporate tax base and the corporate tax rate. How the corporate tax base is formed is a key aspect. A high corporate tax rate with a small corporate tax base will be more advantageous than a moderate corporate tax rate with a large tax base.
Any expenses incurred to earn taxable business income will generally be deductible from the corporate tax base.
- Hungary : 9% rate
Hungary has the lowest corporate tax rate in Europe, with 9 percent of corporate earnings since January 2017. This rate remains unchanged for 2023.
The taxable base is calculated by adjusting the accounting pre-tax profit shown in the taxpayer’s financial statements by the tax base increasing and decreasing items (e.g. tax depreciation, thin capitalisation, provisions, tax loss carry forwards) prescribed in the Hungarian Act on Corporate Tax and Dividend Tax (CDTA).
A local business tax is paid to municipalities, but the rate varies and is limited to a maximum of 2% on net sales revenue.
This low tax regime attracts foreign investors and FDI inflows in Hungary were $ 3.884 billion in 2019 and $ 4.169 billion in 2020, according to the UNCTAD.
Companies are residents for Hungarian corporate income tax purposes if they are incorporated in or if their place of effective management is in Hungary. This central European country determines permanent establishments based on the OECD model guidelines.
The fiscal year begins on January 1 and ends on December 31 of the same year. Companies must annually produce a balance sheet, an income statement and an appendix.
Lastly, Budapest also offers skilled workforce, modern infrastructure and beautiful historical buildings that make comfortable to invest and install offices.
2. Ireland : 12.5 % rate in 2023, 15% in 2024
Ireland has the second lowest corporate tax rate in Europe, with 12.5 percent of business earnings. This low taxation attracts foreign companies and investors. Ireland ranked 8th in terms of FDI inflows in 2020 according to the UNCTAD’s World Investment Report 2021.
Ireland agreed in 2021 to increase its long-standing 12.5% tax rate for companies with global revenues in excess of €750 million and to adopt a new global minimum effective rate of 15%, due to be implemented starting January 1, 2024.
Thanks to an attractive fiscal and regulatory environment, a skilled English-speaking workforce and access to EU markets and Eurozone, the country attracts numerous foreign multinationals, such as Accenture, Medtronic, Google Ireland, etc…
Ireland registered FDI inflows worth $ 81.1 billion in 2019 and $ 33.4 billion in 2020.
A special rate of 25% applies on corporate investment income. This tax is paid on dividends from companies resident outside Ireland, interest, rents, royalties, income from business carried on wholly outside Ireland and from land trading, mining and oil extraction. The tax for dividends from EU and Tax Treaty Territories remains 12.5%.
Corporate capital gains are generally taxed at 33%.
With few exceptions, a company legally established in Ireland is automatically considered Irish resident for tax purposes. A company is also considered tax resident if it is managed and controlled in Ireland.
A company which is resident in Ireland for tax purposes is liable to corporation tax on its aggregate income. Non-resident companies are subject to corporation tax only on their Irish source income.
Under Irish Laws, a non-resident company is deemed to have a permanent establishment in Ireland if it has a fixed place of business in the country through which its business is carried on in whole or in part, or if it has an agent who acts on behalf of the company and who habitually exercises authority to do business in Ireland on behalf of the company.
Lastly, investing in Ireland and opening offices there makes sense as the country is a European member state and has a common border with the United Kingdom, whose the capital city, London, is a world class business and financial centre.
3. Lithuania : 15% rate
Lithuania has the third lowest corporate tax rate in Europe, with 15 percent of corporate earnings in 2022 and 2023.
Lithuanian entities are taxed on their income from all sources, non-resident companies are subject to income tax only on their income from Lithuania and on income received by an establishment established in the country.
Capital gains of resident and non-resident companies are included in taxable income and subject to the general rate of 15%.
Depreciation of tangible and intangible fixed assets is tax deductible at rates varying between 5% (residential buildings) and 33.3% (computers, software). Goodwill is also deductible over 15 years.
Lithuania registered FDI inflows worth $ 1.169 billion in 2019 and $ 0.479 billion in 2020, according to the UNCTAD. The GDP reached +4.8% in 2021, according to European Union Statistic Agency.
In January 2015 Lithuania became the 19th country to adopt the euro as its official currency. This status is a great advantage for business and companies selling goods and services in the eurozone market.
4. Poland : 19% rate
Poland has the fourth lowest corporate tax rate in Europe, with 19 percent of corporate earnings in 2022 and 2023.
There is even a reduced corporate tax rate of 9 percent for companies in their first year of activity or whose turnover is less than EUR 2 million in the previous year.
A company is considered resident in Poland if its registered office or registered office is located in Poland.
A permanent establishment (such as a branch, agency, office, factory, workshop, etc.), a person holding and exercising a power of attorney to enter into agreements on behalf of the company in Poland and construction works, d assembly or installation carried out on the territory of Poland all constitute a permanent establishment in the country for the purposes of corporate taxation.
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Non-residents in Poland are only taxed on their Polish income. Residents are taxed on their overall income, with the possibility of benefiting from foreign tax credits.
Capital gains are generally treated as regular income and are subject to the standard corporation tax rate of 19%.
Regarding tax deductions and credit, expenses incurred for the purpose of deriving, securing or preserving a source of income are generally deductible.
Thanks to its attractive corporate tax regime, Poland registered FDI inflows worth $ 10.853 billion in 2019 and $ 10.080 billion in 2020, according to the UNCTAD.
5. United Kingdom : from 19% to 25% rate
The United Kingdom had the fifth lowest corporate tax rate in Europe, with 19 percent in 2022. This was the main corporate tax rate, not applicable to profits from petroleum rights and extraction.
The UK Government confirmed in March 2023 that the main rate of Corporation Tax levied on UK companies will rise from 19% to 25%. The rate of 19% will still apply to taxable profits up to and including £50,000. Taxable profits above this level will be taxed at a higher rate.
When taxable profits can be attributed to the use of patents, a reduced rate of 10 percent applies.
The corporate tax rate is 25% if multinational companies use artificial arrangements to divert profits overseas to avoid UK tax.
A company is a resident taxpayer if it is incorporated in the UK or has its central place of management and control in the UK.
A foreign company will be deemed to have a permanent establishment in the UK if:
- it has a fixed place of business in the United Kingdom through which the business of the company is carried on in whole or in part, or
- an agent acting on behalf of the company has and usually exercises authority to do business on behalf of the company in the UK.
Resident companies are taxable in the UK on their worldwide income.
A non-resident company is liable to UK corporation tax only on trading profits from a UK permanent establishment or trading profits attributable to dealing in or developing UK land ( even if there is no permanent establishment in the UK).
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The United Kingdom registered FDI inflows worth $ 45.454 billion in 2019 and $ 19.724 billion in 2020, according to the UNCTAD.
Great Britain is no longer inside the EU’s Single Market and Customs Union since January 1st 2021 but still benefits from a strong economy, the international financial hub in the City of London, and trade ties with the largest economies.
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Read also : Seychelles and Iceland ratify the 2016 OECD Multilateral Tax Convention
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© Copyright 2022 – John Meyer, consultant in financial markets.
Eurasia Business News 
It’s a bit old information. From 2023 UK’s corporate tax is 25%
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