Corporate Tax in Europe

Corporate tax in Europe is a key issue for international companies seeking to expand their operations across the continent. Understanding the tax implications is essential. Corporate tax is levied on a company’s income and, similar to personal income tax, is often structured in tax brackets.

Corporate tax in Europe is a key issue for international companies seeking to expand their operations across the continent. Understanding the tax implications is essential. Corporate tax is levied on a company’s income and, similar to personal income tax, is often structured in tax brackets.

Corporate Tax Rates in Europe

Corporate tax rates vary across Europe. Each country determines its own rate, and even within the European Union there is no uniformity. As of 2025, effective corporate tax rates range from 35% in Malta to 9% in Hungary. The European average stands at 21.5%, slightly below the global average of 23.5%.

Why do corporate tax rates differ?

Corporate tax rates often reflect the strength of a country’s economy. Since companies drive economic growth, less stable economies tend to offer lower tax rates to attract investment. Research by the Organisation for Economic Co-operation and Development (OECD) supports this. The OECD found that corporate tax is the most harmful form of taxation for economic growth. Countries with lower corporate tax rates generally experience faster growth than those with higher rates.

Effective Corporate Tax

The effective corporate tax rate is the actual rate paid after accounting for tax incentives and additional levies. These additional taxes often include regional or municipal taxes and social security contributions.

Many countries also offer significant tax incentives if certain conditions are met. These incentives can greatly affect the effective tax rate. Common incentives include:

• R&D tax reliefs – for example, the United Kingdom’s R&D Tax Relief regime grants qualifying companies corporate tax reductions.
• Regional incentives – for example, Germany offers tax benefits to companies operating in development areas such as Mansfeld-Südharz and Hof (Kreisfreie Stadt).
• Capital investment incentives – for example, Italy’s IRES Premiale regime allows qualifying companies to pay a reduced corporate tax rate of 20% instead of 24%.
• Green energy incentives – for example, Spain provides local tax reductions and accelerated depreciation for companies investing in renewable energy.
  
  

Corporate Tax Rates in Selected Countries

*Figures in this table are current as of 2025.

As shown above, in some countries the effective rate is higher than the standard rate (e.g., Germany), in others it is lower (e.g., Switzerland), and in some they are identical (e.g., Greece). Actual rates may vary further depending on the company’s specific tax benefits.

Tax Payment in Israel

In most cases, the Israeli tax relevant to a company’s profits is the dividend tax paid by shareholders upon distribution. However, in certain situations, a foreign company may also be subject to Israeli corporate tax. This occurs when the company’s management and control are exercised from Israel, making it an Israeli tax resident. Where a double tax treaty exists between Israel and the foreign country, foreign tax credits may be available.

Most countries apply similar management and control tests. Therefore, it is important to ensure that the company is managed from the country in which it is incorporated to avoid tax residency issues.

If the foreign company is owned by an Israeli parent company, dividend distribution may take into account the foreign tax paid, under both direct and indirect foreign tax credit mechanisms.
For more information on corporate residency, click here.

Global Minimum Corporate Tax

It is impossible to discuss corporate tax without mentioning the global minimum corporate tax. This initiative, led by the OECD, aims to ensure that large multinational groups with annual revenues exceeding EUR 750 million are taxed at a minimum rate of 15%.

Most countries, including EU member states, have incorporated this tax into their domestic legislation. The implementation timeline varies by country, but the tax is expected to take effect in most jurisdictions within the next few years.

The global minimum tax seeks to prevent a “race to the bottom” among countries competing for the lowest corporate tax rate. As of 2025, the overall impact of this tax remains uncertain. It will take several years of data to fully assess its effects.

For information on the implementation of the global minimum corporate tax in Israel, click here.

For more information on establishing a company abroad, click here.

As shown, corporate taxation is more complex than it may initially appear. Determining the actual tax rate a company will pay requires careful consideration of many factors. It is therefore advisable to consult a qualified tax professional who can provide a comprehensive analysis.

Nimrod Yaron & Co. specializes in Israeli and international taxation and has extensive experience advising clients on the tax considerations of establishing foreign companies. To contact our team, click here.

FAQ