Tax incentives are an important manner in which jurisdictions can make the overall business environment attractive to both local and foreign entrepreneurs. Deductions, exemptions, and tax credits are forms of tax relief for companies, developed according to the country’s taxation policies and applicable at a regional level or as applicable to the country’s organizational system. There are different tax incentives for countries across Europe, among which we can mention the ones for the research and development sector for companies and branches in Germany and in other countries.

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Tax incentives and investment aid

Countries in Europe have different types of investment incentives as well as operational incentives. However, some countries will have a generally attractive tax regime that requires no need for special allowances or deductions. This is the case for those who set up an Estonian company.

Many types of incentives are directed towards specific activities, such as research and development (R&D), while others can target types of companies, especially small and medium-sized ones (SMEs).

Investments can be directed towards the promotion of business expansion and new investments and many countries encourage investments in renewable energy, namely investments in solar and wind energy, through special subsidies. Investments in agriculture and infrastructure can also be available. 

R&D tax credit and tax allowances can be volume-based, such as in Austria, Belgium or Hungary as well as incremental or hybrid, such as in Spain. R&D tax allowances are also volume-based in many countries (Hungary, Latvia, and Romania) and hybrid or incremental in other locations.

Tax incentives in European countries

Below, we highlight some of the types of tax incentives available in different countries across Europe:

  • Belgium: incentives for innovation income, R&D or capital goods investments.
  • Germany: direct subsidies and cash grants; focused on R&D, infrastructure, business expansion and new investments or green energy.
  • Hungary: EU subsidies as well as national incentive programs.
  • Ireland: an R&D tax credit regime and a knowledge development box regime, etc.
  • Spain: tax credits for investments in selected fields, an R&D tax credit as well as a patent box regime.

The level of incentives differs throughout Europe, according to the region and its level of development. Investors are encouraged to seek information at a country level once they decide to base a business in a certain European country.

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