For sole traders and individual entrepreneurs, Europe offers a variety of countries with favorable tax rates and environments conducive to business growth. This article delves into the best European countries for sole traders, focusing on their income tax rates and supportive policies that facilitate ease of doing business.
In the beginning, let’s describe what options are available for opening a business in any country.
Types of business registration
You can use two options for opening a business:
- a company with several employees and owners ( usually, the right to have one employee and one owner is also available here). Different business forms are available for opening: limited liability company ( LLC), partnership, joint-stock company, etc.
- an entrepreneur ( synonymous: self-employed, solo trader). You are here and represent your business independently. You are the one owner of the business, and you can’t share it with others.
General advantages of self-employed for foreigners
- Usually, opening a business in the country (self-employment or a company) gives you the legal right to stay and live in the country.
- In addition, entrepreneurial activity is easier to start and manage than a company.
- You don’t need to have a share capital for self-employment.
So, we will consider in this article what advantages of registering an entrepreneur in different countries and what amount of taxes should be paid in this case.
Notes: You can read here about the best countries for opening a company.
Georgia is one of the best countries for entrepreneurs
Georgia stands out as a prime destination for entrepreneurs looking for a business-friendly environment in Europe. Its strategic location at the crossroads of Europe and Asia, coupled with a straightforward regulatory framework, makes it an appealing choice for starting and expanding businesses. The country has been recognized for its ease of doing business, offering simplified procedures for business registration and operation. Georgia’s commitment to economic reform and development is evident in its modern infrastructure, competitive corporate tax rates, and a highly skilled workforce.
Furthermore, the government’s active efforts to attract foreign investment through various incentives underscore Georgia’s position as an entrepreneurial hub.
This vibrant business ecosystem is supported by a banking sector known for its reliability and innovation, making Georgia an attractive option for sole traders and companies aiming for growth in the European and Asian markets.
Advantages:
- if the turnover ( revenue, income) of your entrepreneur activity is lower than 500 000 GEL ( ~125 000 €), the income tax is 1% of your turnover;
And if your turnover is lower than 30 000 GEL (~ 7 500 €) per year, you don’t need to pay the tax at all. The tax rate is 0% in this case; - easy to receive a visa. You can be in the country using a tourist visa for one year;
- low cost of living;
- minimum documents are needed for an entrepreneur opening.
Montenegro: advantages of self-employed for foreigners
Montenegro presents an attractive proposition for sole traders with its competitive tax rates and beautiful Adriatic setting. The personal income tax rate in Montenegro is one of the lowest in Europe, with a flat rate of 9% for income derived from business activities. This low rate is part of Montenegro’s broader strategy to attract investment and stimulate economic growth. The country also offers a straightforward taxation system, minimal bureaucracy in business operations, and access to key European markets. Montenegro’s combination of low taxes, a growing economy, and a high quality of life makes it a compelling choice for entrepreneurs looking to establish or expand their business presence in Europe.
Advantages:
- the income tax rate is enough low: 9% for entrepreneurs;
- low cost of living;
- a lot of beautiful places to live near the seaside.
Bulgaria: advantages of self-employed for foreigners
Bulgaria offers one of the lowest income tax rates in Europe at a flat rate of 10%. This straightforward tax system is complemented by low social security contributions and a corporate tax rate that matches the personal income tax rate, making it highly attractive for sole traders seeking simplicity and efficiency in tax management.
Advantages:
- income personal tax for entrepreneurs in Bulgaria is low and equals 10% of income, but 25% of income can be automatically included in expenses, so a real tax rate is 7,5% of your income;
- low cost of living;
- beautiful nature with sea and mountains, which are good for summer and winter time spending.
Czech Republic: advantages of self-employed for foreigners
The Czech Republic offers a flat income tax rate of 15% for sole traders, which is among the lower rates in Europe. Additionally, the country has a simplified taxation scheme for small entrepreneurs, further reducing the tax burden and making it a friendly environment for starting a business.
Advantages:
- The Czech Republic gives the possibility to decrease a self-employed income before tax:
- income tax rate: 15 % for income up to CZK 1,867,728; if the income is higher the rate is 23%;
- method 60/40 can be used. It means that you can decrease your income by 60% before income tax calculation. No invoices confirming your expenses are necessary in this case ( for income up to CZK 2 000 000);
- the country is a part of the EU.
Notes:
- social insurance contribution is 14,6% of the net income stated in the tax return;
- health insurance contribution is 6,75% of the net income stated in the tax return.
Malta: advantages of self-employed for foreigners
Malta offers a progressive tax rate for individuals, starting from 0% and going up to 35%. However, for sole traders operating within the Maltese islands, the effective tax rate can be lower due to specific deductions and allowances applicable to businesses. Malta’s strategic location and English-speaking environment add to its appeal.
Advantages:
- the country is a part of the EU.
- Malta has a progressive income tax rate. So, you don’t need to pay an income tax in case of low earnings ( up to 9100€ per year).
Income tax rate in Malta:
| Income range per year, EUR | Income tax rate for self-employed |
|---|---|
| 0 – 9100 | 0% |
| 9100-14500 | 15% |
| 14501-60000 | 25% |
| over 60000 | 35% |
Notes:
- social security contributions are 15% of the previous year’s annual income.
Estonia: advantages of self-employed for foreigners
Estonia stands out for its advanced digital infrastructure and the ease with which businesses can be managed online. For sole traders, the personal income tax rate is a flat 20%, and the country’s e-residency program allows entrepreneurs worldwide to set up and run an EU-based business digitally. Estonia’s transparent and efficient tax system, combined with its digital services, makes it an attractive destination for sole traders.
Advantages:
- Digital Leadership: Estonia is renowned for its advanced digital infrastructure and is often referred to as one of the most digitally advanced societies in the world. The country offers e-Residency, a digital identity that allows global entrepreneurs to start and manage an EU-based company online.
- Ease of Doing Business: Estonia consistently ranks high in ease of doing business indexes. The process for starting a company is straightforward and can be completed quickly, often within a matter of hours.
- Favorable Tax System: Estonia has a unique corporate tax system where corporate income tax is only paid when profits are distributed. This can significantly enhance cash flow for companies looking to reinvest their profits into growth.
- Innovative Ecosystem: The country boasts a vibrant startup ecosystem, supported by a government that encourages innovation through various incentives, grants, and programs. Tallinn, Estonia’s capital, is particularly noted for its dynamic tech startup scene.
- EU Membership: As a member of the European Union, businesses established in Estonia have access to the single European market, allowing for the free movement of goods, services, and labor.
Examples of income tax calculation for self-employed by countries
Let’s consider what amounts of income will be received by an entrepreneur in each country in case of earnings for a year of 30 000€.
Let’s suppose that an entrepreneur has no expenses (only income) to simplify the example.
So, you can see a calculation below.
| Country | Self-employed income, EUR | Income tax, EUR | Earnings after income tax, EUR | Comments |
|---|---|---|---|---|
| Georgia | 30000 | =30000 * 1%=300 | =30000 – 300=29700 | |
| Montenegro | 30000 | 30000* 9% =2700 | = 30000-2700= 27300 | |
| Bulgaria | 30000 | =30000 * (100%-25%)* 10%=2250 | =30000 – 2250=27750 | 25% of income can be included in expenses without any invoices confirmation |
| Czech Republic | 30000 | = 30000* (100%-60%)) * 15% =1800 | = 30000 – 1800= 28200 | 60% of income can be included in expenses without any invoices confirmation |
| Malta | 30000 | =9100×0% + (14500-9100)15%+( 30000 – 14500)25%=4685 | =30000-4685=25315 | progressive tax calculation |
| Estonia | 30000 | 30000* 20% =6000 | =30000 – 6000=24000 |
As you can notice using the example above, the biggest amount after all taxes you will receive in Georgia and the Czech Republic; following go Bulgaria and Montenegro with similar amounts, and the largest taxes are in Malta in this example.
Conclusions: how to choose the country for entrepreneurs in Europe
A choice of a country for starting an entrepreneurial activity depends on your priorities:
- If you prefer a country in the EU with low taxes, the Czech Republic is your choice;
- If you prefer to minimize the taxes and have a company in Europe, it is possible to do in Georgia and Bulgaria;
- As you see, self-employing in Malta is better to use for low earnings. At the same time, Malta is an EU country;
- Beautiful nature, good food, mountains, and sea you can find in Georgia, Bulgaria, and Montenegro;
- Estonia will be an interesting solution too, as Estonia is an EU country and business-friendly; the taxes are higher than in other countries described in this article, however, it is a popular solution to start a business in Estonia.