“The hardest thing in the world to understand is income tax.'' This was said by Nobel prize winner and arguably one of the greatest physicists of all time, Albert Einstein. While it's doubtful whether he was referring to the base rate; most likely the aspects of; why, how and when, which is perplexing for all of us.

Do not be concerned as our courageous leaders are looking to make everything simple and easier to understand, starting off with a 21% global corporate tax rate (put forward at the recent G7 summit) which was welcomed by most EU member states. However, not all member states subscribe to this 'one size fits all' approach, fearing that this will create a precedent in compromising tax sovereignty – it seems smaller members like Ireland and Cyprus will have the final word in the matter. 

What about personal income tax though; can this be fixed at the same level for various countries? Is income tax next on the globalisation checklist?  

For now at least, this is not the case, so what are the rates when you want to hire staff in Europe and why should you care as an employer? As regards the rate, pick any number from 0% to 65% and you will be correct. From country-to-country income tax rates, at the same salary level, can differ up to 55% (i.e. Bulgaria vs Finland), far away from the unified model that the EU and European states dream of achieving. 

Bulgaria has the EU's lowest personal income tax, a flat rate of 10%. Corporate tax rates are the same flat rate of 10% and Bulgaria maintains tax treaties with many countries that could allow for specific tax benefits for international entrepreneurs.

At the same time individual countries are offering incentives to lure digital nomads or tech companies. Greece for example is targeting anybody or any company that wants to open an office in Greece by introducing a new Incentive for anyone relocating there in 2021. They are not required to pay income tax on half of their salary until 2028, whether salaried or self-employed. Similarly Croatia are offering Special Visas  to digital workers from outside the European Union, allowing them to stay for up to a year and exempting them from any income tax. 

Even more appealing is Georgia, under Article 90 of the Georgian tax code, which states that any individual earning up to 500 000 GEL (approx. €130,000) annually and obtaining a certificate of "small business" pays only 1% in personal income tax. A company director earning €125,000 would pay a mere €1250 tax in Georgia compared to €37,400 if they were to work/reside in Austria! A difference of €36,150, a significant number for any professional.

Any employer planning to establish an operation in Europe and employ people faces a daunting task; language, workforce skillset, technology infrastructure, living costs, legal, tax and payroll processing all play a their part in the complex equation and can determine success or failure in what is the world's second largest economy. 

Eurofast, widely recognised as one of Europe's leading payroll and EOR specialists can help clarify the benefits and pitfalls. With fully fledged offices in the majority of Eastern and Southern Europe, Eurofast supports companies throughout the business lifecycle,  offering  Payroll,  PEO/Employer of Record,  Accounting,  Audit,  Tax and M&A services.   

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.