I get tired of paying abusive Danish tax rates (literally the highest in the world), so I am looking to moving my small one-person consulting company to another EU nation. Which EU nation has the most reasonable tax rates? I am thinking either Lithuania, Latvia or Slovenia – Lithuania or Latvia would be great since I also prefer if my tax-money goes to a less well off EU-country, but I don’t know about Lithuania. According to Wikipedia there is a 40% payroll tax that I have to pay?
What about Luxembourg or Liechtenstein?
I don’t think there will be a cut-and-dried answer to this. First, what kind of tax are you looking at: income tax for you as person, income tax on your business, industry tax on your business (varies from city to city), ground tax (dito), sales tax…
Additionally, if you have a business with employees, there’s social security: covered by taxes or not; how much for you as employer; can you as employer get health insurance via social security or do you have to do it privatley? A 40% income tax top rate doesn’t sound high to me (53% used to be top here, and I think that’s reasonable), but if you have a 20% income tax plus 40% social security, or private health insurance, that’s more in the end.
Also, quality of infrastructure: how good are the roads, electricity, water in former Eastern bloc countries? I don’t have hard numbers, but generally, they are still not up to western standards, because for 40 years, they couldn’t invest the same amounts as the western countries, and getting the money to invest since the fall of the iron curtain has been hard. (I can see how hard it was to build up East Germany - it still hasn’t reached the same level of prosperity, job availbility and suffers from flight - and that’s with very prosperous West Germany pumping millions of Marks there!)
Third, corruption. I think the Baltic states are less affected there than the Eastern countries, but still, if you have a business, you don’t want to have to bribe every city official to get things done.
Lastly, special tax breaks to attract certain types of business vary not only by country, but even by region. Though usually they try for High-tech or job-intensive industries, the Baltic states were - at least 10 years ago, at the height of the offshoring- hype - trying to attract the near-shore IT industries for not polluting and offering high-level educated jobs.
Oh, two other points: language and nationality. If you move to another country, do you speak its language? Even if you can conduct your business over the internet in English, you still need to talk to the various offices and the shopkeepers in the national language. Although the Baltic states advertise that they speak fluently English and German, it’s still a different culture and language, esp. if you have family/ children: your spouse would need work and the children need school.
Nationality: are you an EU citzen? Then you have (as you know) freedom of residence and work inside the EU, but still there might be bureaucratic hoops to fill out.
Also, what does the Danish tax law say about money you, as Danish national, earn abroad? I have to pay taxes for what I earn worldwide. There are a lot of double-tax agreements between western nations, but you would have to look closely if the newer countries have already entered this, too.
Well, Nationmaster has a table showing revenue (taxes, social security, fines, fees, etc) as a percentage of GDP. The EU country that ranks lowest on that table is Romania (25.78%). Denmark is 36.01%; France tops out the EU countries at 43.12%.
As others have noted, though, having the lowest revenue as a percentage of GDP doesn’t necessarily translate to having lowest income taxes (or having the lowest rate of whatever tax or charge it is that would bear on you in your particular circumstances).
Liechtenstein isn’t in the EU.
Estonia is listed by a number of free market think tanks as one of the most free in the world. I don’t know about taxes specifically but maybe you want to check that out. I’ll note, though, that ‘the most reasonable taxes’ (in the OP) and ‘the lowest taxes’ (in the title) are not the same thing.
If your focus is on income tax, then Estonia currently has a flat rate of 21%. There were plans to reduce this progressively to (I think) 18%, but these may be on hold given the financial crisis.
Note, though, that if this is a true flat tax then the 21% rate is applied to all income, not just to the top slice after allowances, deductions and lower rates. Thus the appropriate comparison is not between the 21% rate and the marginal rate of tax paid in, e.g., Denmark (i.e. the tax paid on one extra Krone earned), but between 21% and the average rate paid in Denmark (total tax paid as a percentage of total earned). In general the flat tax countries in the EU, on average, have a slightly higher average income tax rate than the progressive tax countries in the EU, but this is necessarily true as between Estonia and Denmark, and in any event average tax rates depend on personal circumstances, so what may be true overall is not necessarily true for any individual.
Note also that Estonia affords its flat tax by have high social insurance contributions, and I think relatively high VAT.
On the other hand, Estonian is probably among the hardest languages of any in the EU for a English speaker (or Danish speaker) to learn, maybe second to Hungarian.
That may not matter: EU nationals can go into business there very easily.
But I don’t plan to actually settle and live there. Just invoice from there. But I don’t actually as such live in Denmark either, so that should be no change. I don’t think I have a fixed residence, I work all over the EU.
Denmark has a long history with Estonia. The Danish flag comes from Estonia where it fell from the sky, and saved the Danish king and his army. Tallinn actually means “Dane town” or something, or is though to mean that. I think Denmark has let down our Baltic brothers after the independence, so I wouldn’t mind at all that my tax money should go there. They’d probably also do more good.
The issue is not whether you think you have a “fixed residence”, but whether any of the EU national tax authorities consider that you are resident for tax purposes (which doesn’t necessarily require a “fixed residence”) in their countries. Simply issuing your invoices from Estonia won’t necessarily earn you an exemption from income tax in every other EU country (though it probably will attract liablity to Estonian tax at some level).
You need advice tailored to your personal circumstances, and those of your business. In general, though, as a starting point I suggest you should look at where other internationally mobile service businesses tend to locate their EU operations; chances are that the tax/social insurance climate in those countries is more likely to be favourable to you (though, obviously, other factors affect their decisions about location). Ireland is one country that leaps to mind in this connection, though no doubt there are others. Having chosen the country you want, you can then explore what kind of connection you have to make to that country in order to escape liablity to Danish tax as a non-resident of Denmark. This will depend in part on the terms of the tax treaty between Denmark and the country concerned.
go talk to sovereign group:
This is what they specialise in. I spoke to them about moving my software company to be owned by a hybrid TCI owned company three years ago. (thats turks and caicos islands).
In the end I didn’t do it, because I get other tax breaks where I am now, but they know this stuff far better than any advice you will get on here.
Malta has fairly low taxes, but why not just forget the EU and put it in Dubai or the Seychelles both of which are easy to do.
I’m American so I have to pay US tax no matter where I live, but with a Dubai company and living in Dubai I can get a few breaks… still don’t like paying tax to a country I haven’t lived in in nearly a decade.
Estonian is Finnish with a Russian accent 
But what reason do you give the tax office and your customers as to why your bill comes from Estonia or wherever, instead of Denmark or wherever your place of business is? You bill either according to your own place of business’ tax rate (VAT) or to customer’s country, where the work was done. (If the work was done in a third country, it gets complicated).
So in order to issue invoices from another country, you need to either get customers there and do the work there, or open an office (branch) there. Both will involve dealing with local rules.
I second the advice to talk to a specialized tax advisor and /or lawyer, who already has done off-shoring/ moving business. The devil is in the details: what kind of business, what taxes you want to lower, how many employees you need, …
To turn this around, do any countries other than the US tax the earnings of their citizens that are not earned I the mother nation?
IN the mother nation. Sorry, iPad autocomplete error.
Many (most?) countries tax the worldwide earnings of residents of that country, regardless of citizenship. In addition, they tax the earnings in that country of everyone, regardless of residence or citizenship. Relief from these general rules may then be granted under the terms of a double taxation agreement, but the application of these usually depends on the residence, not the citizenship, of the individual taxpayer.
I think only a minority of countries seek to tax on the basis of citizenship, regardless of residence.
In many countries, therefore, citizenship is of marginal or no relevance to liablity to tax.
Poland does, or at least they did a few years ago. There was a big issue for all the Polish workers in Ireland about how their income was being taxed by both countries. They’ve probably worked out some deal on that by now.