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Tax systems in Europe
A number of countries also consider some associations of citizens as a subject of taxation. For example, in the UK, individuals, along with citizens, include associations, partnerships, communities and unions.
Another criterion that determines the need to pay taxes on income in the country is the level of economic ties between a potential taxpayer and the state. There are two main approaches to determining the limits of the spread of tax policy.
- The principle of territoriality is based on the objects of taxation arising on the territory of the state, regardless of the national or legal affiliation of the subjects (income received on the territory or from sources in a particular country).
- The principle of residence is based on the taxation of objects of persons who have the status of a tax resident of a particular state, regardless of the source and place of income.
Who is considered a tax resident?
With regard to personal income tax, most EU countries use two approaches at once. They are used on the basis of the determination of the tax residence of an individual. However, the criteria by which this status is assigned are interpreted by laws in different ways.
In the countries of the European Union, the most frequent criterion is the place of physical presence. An individual acquires the status of a tax resident if, regardless of citizenship, he has actually been in the territory of this state for at least a specified period during a certain period (as a rule, 183 days a year).
The actual presence criterion is valid in Italy, Spain, Portugal, Germany, Bulgaria, Hungary, and other countries. It is noteworthy that in Italy and Spain, in addition to this, the criterion of “center of vital interests” is also used. In Slovenia, Poland, and Portugal, both criteria are used to determine the status of an individual: “place of usual residence” and “center of vital interests”.
The categories of subjects of taxation in European countries also differ. Three approaches can be distinguished.
- The subject of taxation is each individual with income separately, regardless of his marital status (Italy, Austria, France, Slovenia, Slovakia, Poland, Lithuania, and Latvia).
- The subject of taxation is a married couple whose income is considered as common joint income (Portugal, Luxembourg, and Malta). In Germany, Spain, Ireland, and Norway, spouses are given the right to choose between individual and joint declarations.
- The subject of taxation is the family, considered in the general case as a group of persons living together and leading a common household.
What income is taxed on?
In the EU countries, there are also some differences in the definition of the object of taxation, as well as the formation of the tax base.
Thus, in the Netherlands, the income of individuals is divided into three categories: professional income, income from significant participation in an organization, income from investments, and investments.
In Hungary, personal income tax is levied on income from wage labor, business, pensions, interest on deposits, dividends, and rental income.
Personal income taxation can be carried out both on a progressive and flat scale. The choice of this or that scale directly depends on the tax policy of the state and the chosen principle – “neutrality” or “fairness and equality”.
The progressive rate is set in countries such as Sweden, Portugal, France, Holland, Switzerland, Greece, Spain, United Kingdom, Luxembourg, Cyprus, Malta, and Poland.
The fixed-rate is applied in Lithuania, Latvia, Estonia, Slovakia, Romania, Hungary.
| Country | Tax | Note |
|---|---|---|
| Hungary | 15% | Including income from dividends and bank deposits. |
| Czech | 15% | On income from employment and entrepreneurship – 7%. |
| Estonia | 20% | Some retirement benefits are subject to 10% income tax. There are no local taxes on income. |
| Lithuania | 20% – 32% | • for income exceeding 104277.6 EUR, namely: • for income related to employment; • for payments to members of the council or supervisory board; • for income earned under copyright agreements; • for income under a civil contract. Distribution income is taxed at a flat rate of 15%. Self-employment income is taxed based on the amount of income earned. Other income not mentioned above is taxed at the personal income tax rate of 15%. A personal income tax rate of 20% applies to income exceeding EUR 148,968. There are no local or provincial income tax rates. |
| Slovakia | 19% up to EUR 36367.76 25% for the amount over | Dividend income is taxed at a rate of 7%. Capital gains are included in a specific tax base, which is taxed at a rate of 19%. There are no local taxes on personal income. |
| Switzerland | Up to 11.5% + cantonal rates | The effective personal income tax rate in the canton of Geneva with an income of 6,000 CHF per month will be 12.20%, with an income of 20,000 CHF per month – 26.15%. |
| Latvia | 20.0-31.4% | Up to 20004 EUR – 20.0%. 20005-62800 EUR – 23.0%. More than 62,800 EUR – 31.4%. Capital gains are taxed at the rate of 20.0%. |
| Poland | 18-32% | Income up to 8000 PLN is not taxed. |
| Italy | 23-43% | Up to 15000 EUR – 23%. 15000-28000 EUR – 27%. 28001 – 55,000 EUR – 38%. 55001 – 75,000 EUR – 41%. More than 75 001 EUR – 43%. Regional taxes (rate from 0.70 to 3.33% depending on the region) and municipal taxes (rate from 0.0 to 0.9%) are added to personal income tax. |
| France | 0-45% | + 3% for the part of income that exceeds 250,000 EUR for one person; + 3% for the part of income that exceeds EUR 500,000 for a married couple; + 4% for the part of income that exceeds EUR 500,000 for one person; + 4% for the part of income exceeding EUR 1 million for a married couple. + Special social security surcharges for residents of the country – 17.2%. |
| Germany | 14-45% | Up to 9407 EUR – 0%. 9408-14532 EUR – 14-24%. 14533-57051 EUR – 24-42%. 57052-270500 EUR – 42%. More than 270,500 EUR – 45%. + 5.5% solidarity surcharge tax – levied as a percentage of all individual income taxes. Church members pay church tax as a supplement to their income tax. The rate is 8-9%, depending on the location. |
| Spain | 19-45% | Up to 12450 EUR – 9.5% Up to 20200 EUR – 12.0% Up to 35200 EUR – 15.0% Up to 60,000 EUR –18.5% Over 60,000 EUR – 22.5% Savings tax is taxed at the following rates: • 19% on the first 6000 EUR of taxable income; • 21% for the next EUR 6,000-50,000 of taxable income; • 23% for any amount over 50,000 EUR. Savings taxable income consists of: • dividends and other income received from owning shares in companies; • interest and other income received from the transfer of the taxpayer’s equity capital to third parties; • capital gains received from the transfer of assets. |
| Slovenia | 16-50% | Up to 8500 EUR – 16%. 8500-25000 EUR – 26%. 25000-50000 EUR – 33%. 50,000-72,000 EUR – 39%. More than 72000 EUR – 50%. Capital gains, interest, dividends and rental income are taxed at a flat rate of 27.5%. |
| United Kingdom | 20-45% | Up to 37500 GBP – 20%. 37501-150000 GBP – 40%. More than 150,000 GBP – 45%. |
