The European Union (EU) consists of 27 member nations that aim to operate under a single market to streamline the flow of goods, services, and capital.
Of these 27 countries, 19 have given up their national currencies and replaced them with a joint legal tender – the Euro.
The financial framework throughout the EU is one of the world’s most complex and comprehensive regulatory systems!
This complex framework is impressive not only for regulating the financial service sector throughout the union but also for incorporating many tax structures of the affiliate states.
Each nation has its tax framework and must align with EU standards and measures of safe financial practices and anti-money laundering regulations.
In Europe and the EU, tax rates are primarily comprised of direct & indirect taxation. Each nation independently defines the various elements of direct taxation, such as taxable income, average tax rates, and minimum tax threshold.
Each country has autonomy in developing its national tax-related frameworks and rates. However, nations have a common standard and understanding with a mutual objective of preventing double taxation and tax evasion.
The primary objective of a streamlined economic system is the free flow of resources. Another aim of these policies is to ensure a level playing field is created for all businesses within the EU.
Income tax rates in the EU are standardised across only some of its member nations. Each country sets the personal income tax slabs individually, and that revenue is spent autonomously by the government. Some nations have flat rates, while others adopt sliding scales.
A majority of the EU countries have a progressive or marginal tax structure, which means that the income tax rate increases or decreases depending on the income generated. Therefore, a fair balance of the tax burden is borne by those who can afford it.
Personal income tax rates for EU nations are not uniform across the board. The EU is designed as a free-flowing zone; hence, there is no specific rule for EU nationals who reside outside their home country.
Usually, however, the country of residency is where taxes are levied on total world income. Individuals have been deemed tax residents when spending more than six months in a country.
European countries, just like many others, generate a large sum of their economic income through corporate income tax. Corporate income tax rates are determined by which nation the company is based in (where they post-revenue) and their tax levy.
Before delving into the various corporate income tax rates, it is essential to understand the difference between statutory and effective rates.
The statutory rate refers to the rate imposed, whereas the effective rate is the eventual ‘reduced’ tax paid after certain exemptions are met. Thus research shows that in many EU countries, the statutory tax is, on average, significantly higher than the effective tax.
In summary, the EU nations levy a corporate tax, which is comparatively lower than other nations’ rates worldwide. Amongst the European OECD countries, the average corporate tax paid is 21.70 per cent, which, research shows, is relatively reduced compared to world standards
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