COO at Alcor
profile Experienced operational manager with strong legal background. Focused on launching back-office processes for software teams in Eastern Europe.
07 April 2023
15 min
Structuring your business right is critical to accumulate more significant income and speed up development. Therefore, figuring out which country and tax system works best is a priority for setting up an offshore dev team (and saving money in a 100% legal way). Many entrepreneurs look for zero tax countries in Europe, but sadly, such locations just do not exist. The good news is that, through 10 years of experience with offshore development offices all over Europe, the Alcor team can provide you with a list of the top 8 European countries with lowest taxes to save money and enjoy faster growth of your tech company. So, keep reading to determine countries with lowest taxes in Europe and choose the perfect destination for your tech outsourcing in 2023.
Page Contents
List of Countries with Lowest Taxes in Europe
Bulgaria
Market Overview
Bulgaria is a fresh and prospective player in the IT industry. With a large talent pool of 115K candidates and 28% female specialist body, Bulgarian operating revenue of sourcing companies is expected to rise to $9.2 billion by 2025, which is more than double the revenue of $4.7 billion that was registered in 2021.
Taxes
Bulgaria opens our list as the country that has one of the lowest tax rate in Europe. The country’s10% flat rate of personal income and corporate income taxes are among the lowest in the European Union. The social security tax rate in Bulgaria is 32.7 – 33.4% of the employee’s gross salary and divided in a ratio of approximately 3:2 between employer and employee, making it a European country with very low taxes.
Benefits of Starting a Business in Bulgaria
Besides taking off the significant tax burden, Bulgaria has much more to offer. The country has a favorable climate for IT companies and is paced 35 out of 112 in the Global Innovation Index.
Risks of Starting a Business in Bulgaria
One of the main cons of starting a local company and hiring Bulgarian developers is the enormous time required to fulfill their tax obligations. In fact, it could take up to 454 hours to pay for social security contributions and VAT. Although the country has a highly competitive fiscal policy, companies still need to put in a lot of effort to benefit from this system.
Solutions
You may find a trusted agency specialized to carry your operational and law support. Alcor is one of those. Not only are we able to hire you the best software developers but you can take advantage of our lawyers and accounting team to help you with payroll and contracts.
Hungary
Market Overview
Hungary is another attractive player among the best tax havens in Europe. With more than an 80K specialist talent pool, Hungarian software developers took the leading 30th place in the latest Courcera’s Global IT skills ranking with a score index of 72% in technology and 78% in data science. It is anticipated that there will be 7.39% annual growth rate in the IT sector revenue this year, which will lead to a market size of a solid $1.95 billion by 2027.
Taxes
The country’s personal income tax of 15% is among the lowest in Europe. It applies to all income earners, regardless of their income level. The corporate income tax rate in Hungary accounts for 9%. The social security tax is 31.5%, in which the employer’s share is 13% and the employees’ 18.5%.
Benefits of Starting a Business in Hungary
Besides the tax system, Hungary is ready to offer you well-educated programmers, as more than 70 high-education institutions prepare 2,700 ICT and 12,000 STEM students annually. Also, ranked #17 out of 112 in the mastery of English, so it won’t be a problem for Hungarian software developers to communicate with native speakers.
The Risks of Starting a Business in Hungary
The major pitfall of opening an IT business in Hungary is tech talent scarcity compared to other countries in the region. In fact, the predominant amount of software developers are located in Budapest, so the tech ecosystem across the country is not so developed. Additionally, you are likely to face operational hardships in terms of legal compliance, dealing with local taxes (including payroll taxes), etc. Just like it would be in any foreign country you discover for your business.
Solutions
Not to miss a chance of starting a software R&D office in one of the tax havens in Europe you can turn to a reliable all-in-one-place company that will guide you through an unfamiliar environment, helping to choose between IT staff augmentation vs IT outsourcing models, prevent unpredicted expenses, and ensure a smooth workflow.
Struggling to hire Eastern European software developers? Leave it on Alcor and get the best talent with an 80% CV pass rate! CONTACT US
Czech Republic
Market Overview
Well, the Czech Republic is not that loud and famous when it comes to outsourcing IT specialists but has a couple of bites for you to offer. For example, a solid 150K of software developers, who demand worldwide respect for their skills in coding in C++, C#, Java, PHP, C, Python, Ruby on Rails, Swift, and other programming languages. In fact, the Czech Republic’s IT market will experience a 3.72% compound annual growth rate from 2021 to 2026, resulting in a $2.22 million increase in market share.
Taxes
The Czech Republic is famous for medieval castles, and some of the lowest tax in Europe. The taxation system in the Czech Republic implies a flat corporate income tax of 19%. When it comes to personal income tax, in 2023, annual income up to CZK 1,935,552 (approximately €80,648) or monthly employment income up to CZK 161,296 (approximately €6,720) will be subject to a tax rate of 15%. Income that exceeds this amount will be subject to a higher tax rate of 23%. The employer contributes 9% of the employee’s gross salary to the state health insurance funds and 24.8% to state social security funds. In turn, an employee contributes 11% of their gross income (contribution rates for social security and health insurance are 6.5% and 4.5%, respectively).
Benefits of Starting a Business in the Czech Republic
What can attract you to the Czech Republic besides being among the most tax friendly countries in Europe? The capital city, Prague, is positioned as the 11th top city for online work, meaning that laws, digital communication options, living expenses, and business rules all contribute to enhancing the effectiveness of remote work. And the cherry on top is the low retention rate of 18%, meaning that a new tech team is likely to be loyal and stay for a long in your offshore development office.
Risk of Starting a Business in the Czech Republic
One thing to mention about developers in the Czech Republic is that they are not so much into learning English, compared to their Central and Eastern European neighbors. Thus, the country is placed #23 in Europe in its English proficiency skills, which might lower the speed and quality of communication.
Solution
There are a couple of approaches you can try out like providing English language courses and setting up speaking clubs with native speakers, but be ready to invest a solid period of time to achieve the desired outcome.
Poland
Market Overview
Poland is a true treasure on the European map for IT outsourcing and is also representative of low tax countries in Europe. With the largest talent pool in its economic region of 400K programmers, Poland’s IT sector is projected to rise by 8.85% between 2023 and 2027, resulting in a market volume of $9.99 bn in just a four-year term. Moreover, following the 24th of February 2022, over 20,000 technology experts migrated from Ukraine to Poland, adding to the pool of IT talent in Poland.
Taxes
Poland offers a 19% corporate tax rate that can be reduced to 9% for small taxpayers, while personal income tax is 12% for income that doesn’t exceed PLN 120,000, and 32% applies on the portion of income that is up to PLN 120,000 (as well, an additional solidarity surcharge of 4% applies to the part of income that gets above PLN 1 million). Also, the social security tax is equal to 34.19-35.85%, where the employers’ share is from 20.48 to 22.14% – and employees are also required to make a 9% healthcare contribution on top of that.
Benefits of Starting a Business in Poland
There are so many benefits to find in IT recruitment in Poland from brilliant technical skills to high-standard working ethics. The country takes a solid 5th place in the world tech skills ranking and is ranked 9th in the world in terms of software competencies. At the same time, the salaries of Polish developers are 2-5 times smaller than those of US-based IT specialists. It is no surprise that Poland attracts both tech giants and tech unicorns.
Risks of Starting a Business in Poland
The major challenge that a tech company might face while entering the Polish IT market is the time difference with major American cities, which can cause the desynchronization of processes in the company and lead to postponed deadlines.
Solutions
Polish developers who work for US companies adjust their schedule and usually sync up in the afternoon, so it’s possible to conduct calls and keep in touch. What’s more, offshore developers ensure round-the-clock software development – so your business never stops!
England
Market Overview
The United Kingdom is mostly known for looking for an outsourcing location rather than being the one itself. However, the country has a very promising IT sector with more than 466,000 programmers and software development professionals in employment in the United Kingdom. And the industry is growing at explosive rates of 6.74%, resulting in a market volume of $115.80 bn by 2027. But one thing that really allures foreign investors is the possibility to establish a relatively low-tax offshore company.
Taxes
The corporate tax in the UK will increase from 19% to 25% starting April 2023, while the personal income tax stays the same:
- For earnings between £12,571 and £50,270, you will be charged a basic rate of 20%;
- For earnings between £50,271 and £150,000, a higher rate of 40% will apply;
- For earnings of £150,001 and above, a high tax of 45% will be charged.
When it comes to social security, the UK can be a bit tricky as the employee pays 12% of weekly earnings, between £242 and £967, and 2% of weekly earnings above £967. Additionally, an employer pays 13.8% of the employee’s weekly earnings above £175.
Benefits of Starting a Business in England
UK tech companies investing in innovation can benefit greatly from research and development (R&D) relief. In particular, small and medium-sized enterprises (SMEs) meeting certain criteria established by local law can receive an extra 130% deduction on R&D investments, along with the normal deductions.
Risks of Starting a Business in England
Britain is a top player in the world tech industry. In fact, its sector is in a leading position compared to the biggest representatives from Western Europe. This eventually results in high competition for IT talents which is already extreme in the UK).
Solutions
Need the best developers? Then offer better conditions, invest in the working environment and education, offer high salaries, and develop your employer brand. Also, go beyond traditional hiring methods like unique referral programs, internships with the perspective of employment, or cooperation with IT recruitment professionals. In case you don’t have a sufficient budget for that, take a look at cheaper European destinations.
Romania
Market Overview
Romania is a flourishing Eastern European tech destination for innovative companies. With a relatively small population, their software developers’ database reaches out to 24K specialists. International Trade Administration reported Romania achieved the largest number of certified IT specialists in Europe, exceeding even the US numbers.
Taxes
Maybe Romania is not a representative of tax free European countries but definitely deserves to be on list of tax havens in Europe due to a few incentives that make its tax system stand out. There are two main options for corporate income tax. If the company’s revenue is below €500K and it has at least one full-time employee, and meets other criteria established by local law, the income tax rate is 1% (micro-company tax). For other companies, the 16% corporate income tax (CIT) will be generally applied. When it comes to personal income tax its rate is 10%, making it one of the lowest income tax in Europe. In addition, IT companies in Romania must make security contributions which amount to 37.25%, where the employer’s part is 2.25%.
Benefits of Starting a Business in Romania
Romania provides tax system benefits for local IT sector specialists, including a salary tax exemption. This feature applies to IT businesses and developers who use an employment contract as their cooperation model and meet the criteria outlined in Romanian law No 1168/2017. The law offers a 10% tax exemption for programmers, provided they hold a diploma after completing short-term or long-term academic studies, or a baccalaureate diploma in specific fields of study.
Risks of Starting a Business in Romania
One drawback of outsourcing to Romania is the head crashing rate of IT industry development that is accompanied by an increase in software developers’ salary rates. In a few years, the job market will become overheated and the country is likely to adjust its price tags to those represented by its competitors in the Western European region.
Solutions
The optimal approach in this situation would be to expand into the Romanian market without delay. This is because the current market conditions are favorable, with a considerable pool of skilled technology professionals available at a reasonable cost. Furthermore, competition in the industry is relatively low, making it easier to recruit top-quality programmers.
Wonder where to find the best tech talents in Romania? Let Alcor hire 5 programmers for you in just 1 month! CONTACT US
Cyprus
Market Overview
With a 1.2 million population, Cyprus can’t surprise you with a big IT talent pool. In fact, there are only about 2,444 people engaged in IT Development in Cyprus as of 2023. Yet, the country is among the most tax free countries in Europe.
Taxes
Cyprus is an attractive location for businesses due to its low corporate tax rate of 12.5% for resident companies and offers a special tax treatment for non-resident companies, which are exempt from paying taxes from income arising outside of Cyprus. Personal income above €19,500 is taxed at 20%, which increases to 25% for earnings over €28,000, to 30% for earnings over €36,300, and to 35% for earnings over €60,000. An employer must make social insurance contributions equal to 10% of an employee’s gross salary, and contribute 2% of all earnings of its employees to the social cohesion fund. As well, an employee is required to make social insurance contributions at 8.3% of their salary.
Benefits of Starting a Business in Cyprus
As was mentioned before, Cyprus is mostly known for its minimal taxation, comfortable business environment, and pleasant climate. If these three conditions fully satisfy you and the absence of a pool of qualified developers doesn’t bother you, then this destination is a perfect fit.
Risks of Starting a Business in Cyprus
Firstly, the bureaucratic system in Cyprus is quite tough, meaning you have to undergo a lot to establish a company. Add to that the lack of IT specialists which makes it very difficult to create a tech team, and these things turn many companies off.
Solutions
Take a look at European countries with a bigger talent pool and consider providing a relocation option for your tech team members. In case you decide to build a team in Cyprus, find reliable lawyers who will be knowledgeable about the legislation system in Cyprus and preferably have respectable experience in establishing a tax guide for tech companies on the island.
Estonia
Market Overview
The leading Baltic country with more than 20K IT specialists, Estonia has experienced significant year-over-year growth of over 60% and last year generated €1.5B in turnover during the first three quarters. At the same time, Estonian Startup Database documented 1449 startups, and 75 of them were created in 2023.
Taxes
You might be surprised that in 2022 Tax Foundation placed Estonia #1 in the list of most tax-friendly countries. Corporate and personal income taxes in Estonia are 20%, although we would admit that their social security tax is pretty high. The employer is charged a rate of 33.8%, which includes 20% of public pension insurance contributions, 13% of public health insurance contributions, and 0.8% for unemployment insurance. Meanwhile, the employee is charged 1.6%, which only covers unemployment insurance contributions. Additionally, if an employee has joined the funded pension system, a contribution of 2% is withheld from their gross salary payments toward their pension account.
Benefits of Starting a Business in Estonia
The best part about the Estonian tax system is that the corporate income tax system in Estonia enables companies to reinvest their profits without being taxed, while corporate income tax is only applied to profits that are distributed. Therefore, Estonia does not impose any corporate income tax on profits that are reinvested and retained by the company.
Risks of Starting a Business in Estonia
Despite comfortable tax planning the relatively small talent pool may make it difficult to start an offshore dev center in Estonia, and because of it, the demand for technical talent, including software developers, consultants, and ICT engineers, is constantly increasing.
Solutions
One thing you should do is to create a strong employer brand for your IT company in the local job market, as this will bring more attention to your company in the tech community, attract developers, and win out against the competition.
Tax Rates in Europe Compared to the US
If you wonder why many American tech companies pick Europe as their primary offshore destination, then take a look at the tax rates in Europe compared to US (represented in the table below):
Country | Corporate Tax, % | Personal Income Tax, % | Social Security Tax, % |
| USA | 21-33 (including both federal and state taxes) | 10-50.3% (including both federal and state taxes) | 15.3% (employer’s share — 7.65%) |
| Bulgaria | 10 | 10 | 32.7-33.4 (employer’s share — 18.92-19.62) |
| Hungary | 9 | 15 | 31.5 (employer’s share — 13%) |
| Czech Republic | 19 | 15-23 | 44.8, including state health insurance (employer’s share — 33.8%) |
| UK | 19 (25% — from financial year starting April 1, 2023) | 20-45 (with no tax under a certain threshold) | Employee pays 12% of weekly earnings between GBP 242 and GBP 967 and 2% of weekly earnings above GBP 967; additionally employer pays 13.8% on employee’s weekly earnings above GBP 175 |
| Poland | 19 (reduced rate of 9% is also available for small taxpayers, with certain exceptions) | 12% for income not over PLN 120,000, and 32% applying on the portion of income that exceeds PLN 120,000 (as well, 4% an additional solidarity surcharge applies to the portion of income that exceeds PLN 1 million) | 34.19-35.85 (employer’s share — 20.48-22.14%); employees also are required to make a 9% healthcare contribution |
| Romania | 16 | 10 | 37.25 (employer’s share — 2.25%) |
| Estonia | 20 | 20 | 37.4 (employer’s share — 33,8%) |
| Cyprus | 12.5 | 20-35 | 20.3 (employer’s share — 12%) |
Final Thoughts
Mistakenly, many foreign tech entrepreneurs associate Europe with high tax countries like France or Denmark. I hope that this article revealed another side of outsourcing to this continent – with flexibility and relatively low taxes compared to the US.
With years of experience, Alcor knows how to hire a dedicated development team in Eastern Europe. Our team of 40 recruiters is ready to source professional software developers in Poland, Bulgaria, or Romania in just 3 to 6 weeks!For example, one of our US-based clients Dotmatics chose Eastern Europe as their hiring outsourcing destination. With the help of Alcor, the tech company achieved its goal to close 24 complicated vacancies for Node.js, Java, C++, React, JavaScript, AWS, and Cypress tech stack within just 1.5-year-time.
Another product IT company headquartered in the USA, Sift, turned to Alcor for establishing their Eastern European R&D branch of 20 developers. We promptly assigned a recruiting team for delivering qualified IT recruitment services. After setting up their R&D office, we took over legal support and payroll management for their offshore engineering team.
Want to get assistance from a reliable Eastern European service provider? Then don’t hesitate and drop us a line now to move one step forward to your dream tech team!
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