Olan McEvoy
Research expert covering the European Union for society, economy, and politics.
Get in touch with us nowTax rates for employees, consumers, and businesses
The average effective rate of income taxation for a single person in the EU was 29.62 percent in 2022, while for a couple with children it was 25.33 percent of their gross earnings, however, this figure represents only the amount paid in income taxes, which may miss out on the large amount of taxes levied through social security contributions and other indirect taxes. The implicit tax rate on labor income - that is, the amount taken from an individuals gross labor income by all direct and indirect taxes - in the EU was 37.8 percent in 2022, while for consumption taxes it was 17.2 percent, while taxes on the profits of corporations tend to be substantially lower in most European countries compared with other forms of taxation.The highest corporate tax rates are found in larger Western European countries such as Germany, where the rate is 30 percent, and the Netherlands, where it is 25.8 percent. Some European countries have been criticized for causing a 'race to the bottom' in terms of corporate taxation due to low overall rates and lax regulations which allow companies to shift profits from high tax jurisdictions into their country. This is particularly the case for Ireland, which has a corporation tax rate of 12.5 percent and which has been accused of allowing large American multinational companies such as Apple, Facebook, and Airbnb of minimizing their corporate taxation burdens through their Irish subsidiaries.
Rising tax revenues fail to keep pace with growing government expenditure
In total, countries in the EU raised 6.3 trillion euros in tax revenues in 2022, with Germany being the country with the largest tax receipts in Europe, raising 1.6 trillion euros. On average EU countries generated 51.4 percent of their total taxation revenues from taxes on labor income, 27.5 percent from taxes on consumption, and another 21 percent from taxes on capital. This ranges from the 55.6 percent of tax revenues which were generated by taxes in labor income in Sweden in 2022, to only 35.9 percent in Croatia, which in fact generated over half of its tax revenues from taxes on consumption. As annual government expenditure in the EU exceeds 7.5 trillion euros a year, many European countries must make up for the gap between tax revenues and expenditure by issuing government debt, as evidenced by the rising level of government debt in the EU over the past two decades, which now exceeds 80 percent of GDP.
