Setting tax rates remains a balancing act for European policymakers, who must fund essential public services while maintaining an environment that attracts investment and economic growth. According to the Tax Foundation’s International Tax Competitiveness Index (ITCI) 2024, Estonia once again tops the rankings as Europe’s most competitive tax system, while France and Italy sit at the bottom.
Tax revenues accounted for 40% of the European Union’s gross domestic product (GDP) in 2023, according to Eurostat. Yet, tax structures across Europe differ sharply, reflecting varied economic priorities and social models. The ITCI evaluates countries on two main principles: competitiveness—keeping marginal tax rates low to encourage investment—and neutrality—raising revenue with minimal market distortion.
“Countries can improve their tax structure without losing much revenue by reducing complexity and inefficiencies in their tax systems,” said Alex Mengden, a policy analyst at the Tax Foundation, in an interview with Euronews Business.
Baltic States at the Top
Estonia scored a perfect 100 in the index, followed by Latvia (92.8) and Lithuania (81.8). Switzerland (86) ranked third, rounding out the top four. These countries’ simple, transparent tax codes and low corporate rates continue to attract investors and businesses.
In contrast, France scored 45.8—the lowest in Europe—mainly due to a temporary surtax that raised its top corporate tax rate to 36.1%, nearly 12 percentage points higher than the OECD average. Italy followed with 50.3, with Poland (54.7) and Spain (57.9) close behind.
Western Europe Trails Behind
While Central and Eastern European countries generally achieved better results, Western Europe lagged. Portugal (58.2), the United Kingdom (59.1), Ireland (61.3), and Belgium (63.2) also ranked in the lower tier. The Nordic nations—Sweden (76.1), Norway (68.8), Finland (66.8), Denmark (64.3), and Iceland (63.7)—occupied the middle of the table.
Germany, with a score of 68.9, performed better than most major Western economies. According to Mengden, Germany’s stronger ranking is due to its “neutral approach to taxing capital,” avoiding distortive levies such as wealth or financial transaction taxes. Its property and consumption taxes were also cited as key factors driving competitiveness.
Key Drivers Behind the Rankings
This year’s index found that property taxes and corporate tax incentives most strongly influence overall scores. Countries with simpler, less distortive property taxes and streamlined corporate tax incentives performed best. For instance, France scored just 29 in the corporate tax category, compared to Italy’s 58.
The report concluded that in an era of highly mobile global capital, the structure of a nation’s tax code is crucial in determining its long-term economic performance. Efficient, transparent, and stable tax systems, it said, remain central to Europe’s fiscal competitiveness and growth.
