The 8 Best Low-Tax Destinations in Europe for Software Development

Absolutely any business wants to pay less taxes, and this is especially true for startups. In an increasingly globalized world, software development companies seek cost-effective locations with a favorable tax environment. We know this better than anyone else because we help find talent for various client requests, and often, such requests can even come with a specific geo.

Speaking of Europe, there are several countries whose taxation is of intense interest to businesses worldwide. By relocating to these countries, companies can optimize their tax obligations and gain access to a skilled workforce. In this article, we’ll look at eight of the lowest-tax countries in Europe that are ideal for software development, focusing on places that not only offer tax benefits but also boast vital IT ecosystems.

Types of taxes in European business

When talking about taxation in foreign countries, it is important to understand what it consists of and why you pay a certain amount. Let’s look at the main types of taxes you may encounter when transferring your business to Europe.

Corporate income tax

CIT is perhaps the most significant percentage of taxation that awaits you. It is calculated based on all income received from a permanent establishment (PE) within the country but not from foreign sales. Some countries have a fixed CIT rate, while others have thresholds depending on the company’s size.

Value added tax (VAT)

Essentially, this is a tax levied on a product at every production stage. It is a fixed percentage; that is, the amount depends on the final cost of the product minus production/development/manufacturing costs. The standard VAT tax in the EU is 21%.

Capital gains tax

Capital gains tax is a levy paid on profits from the sale of certain assets, including shares and real estate investments. It is relevant for businesses associated with the sale of commercial real estate or the sale of the business itself. Sometimes, this type of tax may be included in the standard CIT rate, but some countries impose it as a separate tax.

In addition, some European countries have local taxes, which vary depending on the municipality (or canton, such as Switzerland).

The best European countries for doing business

Let’s look at the most popular countries for doing business among businesses worldwide, paying attention to their pros and cons.

1. Creation of an IT company in Ukraine

Pros:

• Competitive tax rates: the country has a 5% income tax rate for individual entrepreneurs under a simplified tax system.
• Skilled Workforce: Ukraine is known for its vast pool of IT talent.
• Low operating costs: office rent and salaries are affordable and comfortable for business.

Cons:

• Political instability and military actions create some risks for businesses, although most local businesses have already developed their own insurance systems.
• Regulatory hurdles: Navigating local bureaucracy can sometimes be challenging.

Thus, Ukraine represents a cost-effective environment with highly qualified personnel with great potential, but some risks are associated with political and regulatory issues.

2. Creation of an IT company in Poland

Pros:

• The corporate tax rate is 19%, with some benefits for small businesses.
• Direct access to EU markets: Poland’s EU membership provides many business benefits.
• Robust technology infrastructure: the country is actively developing its technology ecosystem, and the number of startup hubs is growing exponentially

Cons:

• Higher cost of everything compared to Eastern Europe.
• Increasing competition for IT specialists due to the boost in the technology industry.

Thus, Poland is one of the best options for companies with ambitions to enter the EU market. The country has a solid technological infrastructure, although the cost of services can sometimes be relatively high.

3. Creation of an IT company in Georgia

Pros:

• IT companies are exempt from corporate tax in free industrial zones.
• Highly qualified labor at a reasonably low cost.
• Simplified process of registering a new business.

Cons:

• Limited local market size.
• Domestic demand is minor and highly dependent on foreign clients.

Thus, Georgia is advantageous because it offers tax benefits and an optimized business environment but has limited potential.

4. Creation of an IT company in Bulgaria

Pros:

• One of the lowest corporate tax rates in Europe — 10%.
• Operating costs and labor are affordable.
• EU membership gives access to European markets.

Cons:

• There are apparent problems with the language barrier, which causes problems in business operations.
• Relatively slow bureaucratic processes.

Thus, Bulgaria has low taxes and direct access to the EU, making it a cost-effective base for software development. However, a number of minor operational difficulties may affect the business.

5. Creation of an IT company in Slovakia

Pros:

• The corporate tax rate is 21%, but a number of incentives for research and development are included.
• Good location in Central Europe.
• EU membership and stable political environment.

Cons:

• The cost of living and operating is much higher than in Eastern European countries.
• The competitive market for qualified IT specialists.

Thus, Slovakia can be called a stable country that is pleasant for business but has high operating costs.

6. Creation of an IT company in Portugal

Pros:

• Broad tax incentives for foreign investors and startups.
• Developing technology ecosystem and access to EU markets.
• High quality of life, which attracts talent from other countries.

Cons:

• Higher operating costs compared to Eastern Europe.
• Language barriers can create problems in specific business relationships.

Thus, Portugal has a suitable start-up environment, although higher costs must be considered.

7. Creation of an IT company in Romania

Pros:

• Corporate tax is fixed at 16%; there are discounts for small businesses.
• The pool of professional IT specialists with competitive salaries.
• Fast-growing technology industry.

Cons:

• Bureaucratic aspects are heavy and can slow down business processes.
• The infrastructure is still under development.

Thus, Romania is quite an exciting option for business, but since the ecosystem is just developing, you may encounter unsettled processes and bureaucracy.

8. Creation of an IT company in Hungary

Pros:

• The corporate tax rate is 9%, the lowest in the EU.
• Good geographical location.
• Tangible government support for the technology industry.

Cons:

• Complex tax regulation, which is easier to understand with third-party specialists.
• Relatively high competition with a price tag that is only sometimes justified.

Thus, Hungary has a favorable position and taxes, but attracting local specialists is necessary.

Conclusions

When choosing a location for your business in Europe, tax rates are a decisive factor, but they are not the only factor. Carefully study the legislation and market potential in the chosen country because this is what will ultimately be responsible for your success. We often emphasize that all the details are essential, including the cultural component, so always be open when choosing a country.

For example, countries such as Ukraine and Bulgaria offer competitive tax advantages and affordable operating costs, making them ideal for startups. However, if access to the EU market and a stable business environment are your priorities, Poland and Slovakia provide great opportunities despite slightly higher costs. Ultimately, the best location will suit your company’s needs, combining low taxes, a skilled workforce, and strategic market access.

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