Choosing an EU country to establish a business can offer access to the EU Single Market and a range of corporate tax structures, but the lowest headline corporate tax rate does not necessarily produce the lowest effective tax burden.
There is no single best EU country to start a business. Estonia may suit remote-first businesses, Ireland internationally oriented companies, the Netherlands larger scale-ups and Hungary founders focused primarily on a low headline corporate tax rate.
But headline comparisons often miss a second question: what happens after the company is incorporated? Corporate tax, dividend taxation, the founder’s personal tax residence, profit retention and compliance costs can materially change the overall result.
I am Prof. Dr. Stjepan Gadžo, Vice-Dean for International Affairs and Professor of Financial Law at the University of Rijeka. My work in international tax law focuses on the same cross-border questions that business owners face when corporate income, personal tax residency, profit distributions, and tax obligations span more than one jurisdiction.
By the end of this guide, you’ll understand how the 10 jurisdictions compare beyond their headline corporate tax rates, and which variables are most relevant to your business model, revenue level, plans for extracting profits, and relationship with the EU.
Quick answer: Which EU country is best for starting a business?
There is no single best EU country to start a business, the right choice depends on whether you prioritise corporate tax, how profits are taxed when distributed, market access, administrative simplicity, or the ability to scale.
For the 10 jurisdictions compared in this guide:
- One of the strongest options for small and early-stage companies: Croatia, with a 10% corporate tax rate for qualifying companies below the €1 million revenue threshold, combined with EU Single Market access, eurozone membership and Schengen access.
- Lowest headline corporate tax rate: Hungary, at 9%, the corporate tax rate has been 9% of the positive tax base since the 2017 tax year.
- Better suited to larger international structures: jurisdictions such as the Netherlands and Ireland may be chosen for reasons beyond the headline corporate tax rate, including infrastructure, international business ecosystems and established cross-border structures.
- Best choice once a business scales: depends heavily on the full tax model, particularly how profits will be retained, distributed as dividends, or realised on an eventual exit.
The key point: the country with the lowest corporate tax rate is not automatically the best place to incorporate. For many founders, the more useful comparison is corporate tax + dividend taxation + the founder’s tax residence + compliance costs + the practical value of being established in that jurisdiction.
The rest of this guide compares those factors across 10 major EU jurisdictions.
Quick comparison: Which EU countries suit which founders?
| Country | Particularly relevant for | Main trade-off |
|---|---|---|
| Croatia | Small and early-stage businesses seeking EU access and competitive SME taxation | Smaller domestic market |
| Estonia | Remote-first companies retaining and reinvesting profits | E-Residency does not determine tax residency |
| Hungary | Founders prioritising a low headline corporate tax rate | Other taxes and structural considerations still matter |
| Poland | Qualifying SMEs and Central European operations | More complex tax and compliance environment |
| Ireland | International and English-speaking business operations | Higher operating costs and broader tax analysis may be needed |
| Netherlands | Scale-ups, international structures and logistics | Higher corporate tax and operating costs |
| Germany | Businesses needing access to Europe’s largest economy | Higher tax and compliance burden |
| France | Businesses specifically targeting the French market | Higher tax and regulatory complexity |
| Denmark | Nordic market access and an established business environment | High operating costs |
| Portugal | International founders seeking an EU base with access to Southern European markets | Corporate tax can become more complex once surcharges are included |
Corporate income tax across 10 selected EU jurisdictions (2026)
| Country | Standard / combined CIT | Reduced rate or special treatment for smaller companies |
|---|---|---|
| Croatia | 18% | 10% for qualifying companies with annual revenue below €1 million, according to the Croatian Tax Administration’s corporate tax guidance |
| Estonia | 22/78 of net profit distributed; retained profits are generally not taxed until distribution, according to the Estonian Tax and Customs Board | Retained and reinvested profits are generally not subject to corporate income tax until distribution, subject to applicable rules |
| Hungary | 9%, according to the Hungarian Tax Authority (NAV) | — |
| Poland | 19% | 9% for qualifying small taxpayers, subject to applicable conditions, according to Biznes.gov.pl |
| Ireland | 12.5% on qualifying trading income, according to Irish Revenue’s Corporation Tax guidance | Treatment depends on the nature and classification of the company’s income; non-trading income may be taxed differently |
| Netherlands | 25.8% | 19% on the first €200,000 of taxable profit, according to the Government of the Netherlands – Corporation Tax |
| Germany | Approximately 30% combined, depending partly on the municipality and applicable trade tax | — |
| France | 25% standard corporate income tax rate, according to PwC Worldwide Tax Summaries – France | Reduced rate may be available for qualifying SMEs, subject to applicable conditions |
| Denmark | 22%, according to PwC Worldwide Tax Summaries – Denmark | — |
| Portugal | Up to approximately 29–31% combined on mainland, including applicable surcharges, according to Portugal Global – Corporate Income Tax | Reduced rate available for qualifying SMEs, subject to applicable conditions |
A note on precision: several of these systems depend on company size, profit level, municipality, ownership conditions or other qualifying requirements. Estonia also operates on a fundamentally different model from a conventional annual corporate income tax system. Treat this table as a starting comparison rather than a substitute for jurisdiction-specific tax advice.
Croatia: The EU business option many older comparisons still miss
Croatia is one of the EU business jurisdictions that many older comparisons still overlook. Croatia has been an EU Member State since 2013, but two important changes came in 2023: it joined both the euro area and the Schengen Area. For founders comparing European jurisdictions today, that means Croatia combines full EU Single Market access with the euro as its operating currency and Schengen travel and border arrangements.
- 10% corporate tax for companies under the €1 million revenue threshold
- Full EU Single Market access for goods, services and capital
- Euro as the operating currency no FX conversion drag on EU-facing revenue
- Schengen membership, meaning visa-free travel for founders from the US, UK, Canada, Australia and New Zealand for up to 90 days per 180-day period
- A relatively simple d.o.o. structure compared to the compliance load in larger EU economies
- A 10% dividend withholding rate on profit paid out to non-resident shareholders, before any treaty relief
- Potentially favourable treatment of certain individual capital gains held for more than two years with the important caveat, covered above, that this rule is narrower and more specific than it’s often made to sound, and needs to be assessed transaction-by-transaction
Croatia’s appeal is strongest for a specific type of founder: a small or early-stage company that wants an EU base, operates below the relevant revenue threshold and values the combination of competitive corporate taxation, eurozone membership and potentially lower operating costs than some larger Western European markets. It is not automatically the best jurisdiction for every business.
If Croatia appears to be the right fit for your business, read our complete guide to doing business in Croatia, covering company formation, taxation, workforce considerations, key industries and the practical realities of entering the Croatian market.
Estonia: Best known for remote-first and digital business administration
Estonia is one of the most recognisable EU jurisdictions for digital and remote-first businesses. Its e-Residency programme allows eligible non-residents to access Estonia’s digital business environment and manage certain company-related processes remotely. Combined with highly digitalised public administration, this makes Estonia particularly attractive to founders who do not need a traditional office-based presence in the country.
Its tax system is another important distinction. Estonia is often described as offering “0% corporate tax on retained profits,” but the more useful way to understand the system is that corporate taxation is generally deferred while qualifying profits remain undistributed and is triggered when profits are distributed or otherwise treated as distributed. This can be attractive for companies intending to retain earnings and reinvest them into growth rather than regularly distribute profits to shareholders.
However, digital incorporation does not remove cross-border tax questions. e-Residency is not tax residency, either for the founder personally or necessarily for the company. If a founder manages the business from another country, questions may arise about personal tax residence, the company’s place of effective management, permanent establishment and tax obligations in the country where the business is actually conducted.
Hungary: The lowest headline corporate tax rate
Hungary has the lowest headline corporate income tax rate among the jurisdictions compared in this guide: 9%. Unlike Croatia’s reduced 10% rate for qualifying companies below the €1 million revenue threshold, Hungary’s corporate income tax rate is not based on an equivalent small-company revenue tier. On the face of the corporate income tax rate alone, this makes Hungary an obvious jurisdiction to consider.
That does not mean a 9% rate tells a founder what their total tax cost will be. Corporate income tax is only one part of the structure. Other applicable taxes, the treatment of dividends and other profit extraction, the shareholder’s personal tax residence and the way the company is actually managed can all affect the final result.
Poland: A serious SME tax competitor
Poland deserves to be compared directly with Croatia because it also offers a reduced 9% corporate income tax rate for qualifying small taxpayers, subject to statutory conditions. Its standard corporate income tax rate is 19%, creating a two-tier framework that can be highly relevant to smaller businesses.
This means Croatia cannot simply be described as the “best” EU option for every SME based on its 10% rate. Depending on the company’s expected revenue, eligibility for Poland’s reduced regime and broader business structure, Poland may offer a more favourable company-level tax outcome.
The comparison also extends beyond the rate itself. Poland offers access to one of the EU’s largest Central and Eastern European economies, a substantial workforce and a large domestic market. Croatia, by contrast, offers a smaller domestic market but combines EU membership with eurozone and Schengen participation and may suit founders looking for a different balance of taxation, operating environment and geographic position.
Ireland: International operations and English-speaking EU access
Ireland remains one of Europe’s most prominent jurisdictions for internationally oriented businesses. Its English-speaking environment, close commercial links with the United States and position inside the EU Single Market make it a natural consideration for founders building companies with international customers, investors or operations.
Ireland is also well known for its 12.5% corporation tax rate on qualifying trading income. However, reducing Ireland’s tax system to “Ireland equals 12.5%” is too simplistic. The applicable treatment can depend on the nature of the income, the company and the wider structure, while other tax rules may become relevant depending on how profits are retained, distributed or earned through different activities.
Ireland may therefore be a stronger choice for a company that values its international business ecosystem and English-speaking EU environment than for a founder selecting a jurisdiction purely on the lowest available corporate tax rate. Croatia’s 10% rate for qualifying smaller companies is lower at the company level, but Ireland and Croatia are not necessarily competing for exactly the same business profile.
But Corporate Tax Isn’t the Whole Story
Corporate income tax is only one part of the cost of operating and owning a company. When comparing EU jurisdictions, founders should also consider how profits are taxed when distributed, how an eventual exit is treated, the company’s access to the EU market, and the ongoing cost of compliance.
These four factors can materially change the effective tax and operating position of a business.
How Are Dividends Paid to Foreign Shareholders Taxed?
Corporate income tax applies to the company’s taxable profit. A separate withholding tax may apply when the company distributes that profit to a foreign shareholder.
In Croatia, dividends and profit shares paid to non-resident legal persons are generally subject to 10% withholding tax under domestic rules, according to the Croatian Tax Administration’s corporate tax guidance.
That domestic rate is not always the final tax result. Depending on the shareholder and ownership structure, the rate may be reduced under an applicable Double Taxation Treaty. Qualifying distributions within the EU may also benefit from relief under the EU Parent-Subsidiary Directive, subject to the applicable legal conditions and anti-abuse rules.
Why this matters: a founder comparing two countries should not compare corporate income tax in isolation. The combined treatment of company profit + tax on profit distribution can produce a materially different result depending on whether profits are retained, reinvested or paid out.
Does Croatia Have 0% Capital Gains Tax After Two Years?
Not as a blanket rule. This is one of the most commonly misunderstood points in Croatian tax content.
Croatia generally taxes certain individual capital gains from qualifying financial assets at 12%, while gains on qualifying financial assets held for more than two years are generally exempt, according to the Croatian Tax Administration’s guidance on capital gains income.
However, this is an individual-level rule relating to qualifying financial assets. It does not mean that:
Any company can sell another company tax-free after holding it for two years.
For example, if an individual founder personally sells qualifying shares after meeting the relevant holding-period conditions, the individual capital gains rules may apply. If a company sells shares in a subsidiary or disposes of another business asset, the transaction must instead be analysed under the corporate tax rules applicable to that company and transaction.
Why this matters for founders: the tax treatment of an exit can differ significantly depending on who owns the shares. An individual founder, a Croatian holding company and a foreign parent company may each face a different tax analysis.
Does EU, Eurozone and Schengen Membership Matter for a Business?
Yes. A lower tax rate does not automatically make a jurisdiction cheaper or easier to operate from.
For a business selling across Europe, EU Single Market access can affect the movement of goods and services, while the use of the euro can reduce currency-conversion requirements for euro-denominated transactions. Croatia has been an EU Member State since 2013 and joined both the euro area and the Schengen Area on 1 January 2023.
For founders from countries with visa-free short-stay access to the Schengen Area, including the United States, United Kingdom, Canada, Australia and New Zealand, the general Schengen short-stay framework allows travel for up to 90 days in any 180-day period, subject to the applicable entry rules. See the European Commission’s Schengen short-stay rules.
Important: visa-free travel does not automatically give a founder the right to reside, work or become tax-resident in Croatia. Company ownership, immigration status and tax residence are separate legal questions.
How Much Do Compliance Costs and Company Administration Matter?
They can materially affect the real cost of choosing a jurisdiction, particularly for a small company.
A jurisdiction with a lower headline corporate tax rate may still become more expensive if the company requires more complex filings, local tax calculations, regional taxes, multiple registrations or greater professional support.
In Croatia, the d.o.o. is the standard limited-liability company structure used by many small and foreign-owned businesses. Whether it is simpler or cheaper than an alternative jurisdiction will depend on the company’s activities, number of employees, VAT position and cross-border transactions.
Considering Croatia for Your Business?
Choosing where to establish a company should involve more than comparing headline corporate tax rates.
If you decide Croatia is the right jurisdiction, we can support your company registration in Croatia and help coordinate the key legal and practical steps involved in establishing your business.
At Mandracchio Capital, we advise international founders, investors and business owners on entering the Croatian market, company formation and cross-border structuring considerations.
Before incorporating, we can help you assess whether Croatia is the right fit for your plans and identify the key legal, tax and practical issues that should be considered as part of your structure.
Planning to start or move your business to Croatia? Book a consultation with our team.
Frequently Asked Questions
Is Croatia one of the lowest-tax countries in the EU?
Not the lowest. Hungary’s 9% corporate income tax rate is lower than Croatia’s standard rates. Croatia generally applies 10% corporate income tax to companies with annual revenue below €1 million and 18% above that threshold, subject to the applicable rules. Croatia’s appeal is therefore not simply having the lowest headline rate, but combining a competitive SME rate with EU Single Market access, eurozone membership and Schengen membership.
Which EU country has the lowest corporate tax rate?
Among the jurisdictions compared in this guide, Hungary has the lowest headline corporate income tax rate, at 9%. However, the headline rate is only one part of the comparison. Local taxes, dividend withholding tax, the taxation of an eventual exit and the founder’s personal tax residence can materially change the overall result.
Which EU country is best for a small company or startup?
There is no single answer. Croatia, Hungary, Poland and Estonia can all be attractive, but for different reasons. Croatia offers a 10% rate below its relevant revenue threshold; Hungary has a flat 9% corporate income tax rate; Poland has a reduced regime for qualifying small taxpayers; and Estonia is particularly known for its taxation of distributed rather than retained profits and digital business administration.
The right jurisdiction depends on your expected revenue, whether profits will be reinvested or distributed, your ownership structure, where management takes place and how you eventually plan to exit the business.
Does Croatia have 0% capital gains tax after two years?
Not as a general statement. Croatia generally exempts certain capital gains realised by individuals on qualifying financial assets held for more than two years from the applicable 12% capital gains tax, subject to the statutory conditions.
This is an individual and asset-specific rule. It does not mean that a company can automatically sell a subsidiary, shares or a business tax-free after holding it for two years. Corporate disposals are generally assessed under the corporate income tax rules applicable to the specific transaction.
How are dividends taxed when paid from a Croatian company to a foreign shareholder?
For non-resident corporate recipients, Croatia’s domestic withholding tax rate on dividends and profit shares is generally 10%, before any applicable relief. The final rate may be reduced under a relevant Double Taxation Treaty or, in qualifying intra-EU structures, potentially reduced to 0% under the applicable EU Parent-Subsidiary framework and Croatian implementing rules.
The result depends on who owns the Croatian company, where the shareholder is tax-resident and whether the relevant ownership, beneficial ownership, anti-abuse and other conditions are met. An individual shareholder requires a separate analysis.
Can a US, UK, Canadian, Australian or New Zealand founder register a company in Croatia without EU residency?
Generally, yes. Non-EU nationals can generally establish and own a Croatian company without automatically becoming Croatian tax residents. However, company ownership, the right to live or work in Croatia, and personal tax residency are separate legal questions.
A founder may be able to own a Croatian company without Croatian residence, while still needing to consider immigration or work-permit rules if they intend to live or work in Croatia. They should also consider where the company is actually managed and controlled, where business activities are carried out, and where they personally remain tax-resident.
For cross-border founders, these issues should be reviewed together rather than treating company registration as automatically solving residency, immigration or personal tax obligations.
