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Personal Income Tax in Europe in 2024: Rates and Methods of Minimization
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Income tax, or personal income tax (PIT), is levied on the income of individuals (wages, dividends, interest, or other income) that you may receive during the year.
Taxation in Europe by country in 2024 can vary significantly from one country to another. Although the EU develops common standards and recommendations in taxation, decisions on income tax rates remain within the competence of individual countries.
However, there are common trends applied to income tax in the European Union. For example, in most EU countries, a progressive taxation system is applied. In a progressive system, the tax rate increases as income increases. Usually, several tax brackets are set, each applying to different income ranges.
Income tax rates can vary widely, ranging from 0% to the maximum rates set in each specific country, depending on the taxpayer’s income level.
Below in the table, we have listed the maximum income tax rates set by each country, so you can compare them.
Countries are arranged from highest rates to lowest, which may be applied based on the tax policy of each state.
Comparing the taxes of EU countries will help better understand the differences in tax systems and assess the level of tax burden in each of them.
Maximum income tax rates in EU countries: France:
France
55.4 %
Austria
55 %
Spain
54 %
Portugal
53%
Netherlands
49.5%
Germany
47.5%
Italy
47.3%
Greece
44 %
Poland
36%
Malta
35%
Cyprus
35%
How is income tax calculated in the EU?
The calculation of income tax depends on the specific tax system applied in each country.
However, in most cases, it is based on the following fundamental principles:
Determination of the tax base:
The taxable base usually comprises the total income of the individual for the tax period. This income may include wages, investment interest, rental income, dividends, and other sources of income. The tax base may be adjusted for deductions and allowances provided for by tax legislation.
Determination of the tax rate:
In a progressive system, the tax rate increases as income rises. Typically, several tiers of tax rates are established, each of which applies to different income ranges.
Calculation of tax:
Tax calculation is usually performed by multiplying the tax base by the corresponding tax rate. Various deductions, allowances, and discounts may then be applied to reduce the total amount of tax owed by the taxpayer.
Submission of tax returns and payment of tax:
Taxpayers must submit tax returns, indicating their income, deductions, and allowances, as well as the calculated amount of income tax. Subsequently, the tax payment must be made in accordance with the requirements of tax legislation.
How to reduce income tax in the EU?
There are strategies that can help reduce this burden and optimize taxes.
Utilize Double Taxation Avoidance Agreements:
One of the most important tools for reducing income tax is the use of Double Taxation Avoidance Agreements. Many countries enter into such agreements to prevent situations where the same income is taxed in two different countries. This helps to lower the tax burden on individuals and companies engaged in international activities.
Utilize Minimum Exempt Amounts:
Each country establishes minimum income thresholds that are exempt from income tax. For example, in Portugal, this amount is €7,703, while in Cyprus, it’s €19,500. This means that if your income does not exceed these amounts, you are exempt from paying tax on that portion of income.
Tax Deductions Based on Income Type:
Various countries offer special deductions to reduce the taxable amount depending on the nature of the income. Deductions may be available for expenses related to children, education, medical expenses, donations, etc.
Choose a Country with Favorable Tax Policies and Change Tax Residency:
You can obtain tax residency status in countries with favorable tax policies to reduce both corporate and personal taxation. Some countries offer lower income tax rates for individuals and businesses.
For instance, Cyprus is known for its low personal income tax rate and various tax incentives for residents (low corporate tax, no tax on dividends, interest, as well as no inheritance or gift taxes). Choosing a country with a more favorable tax system for tax residency status can significantly reduce tax obligations.
Feel free to reach out to us for more detailed information on how to reduce your income tax and optimize your tax situation.
Remember, effective tax planning can significantly save your money and ensure financial stability.
In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes i...
In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes in immigration and corporate law of European countries, particularly:
