Understanding Capital Gains Tax Across Europe

Capital gains tax is a levy imposed on the profit gained from the sale of capital assets, such as stocks, real estate, and cryptocurrency. While many European countries apply varying rates of capital gains tax, some impose higher taxes compared to others.

Highest Capital Gains Tax Rates in Europe

According to the Tax Foundation's 2024 report on European capital gains tax, Denmark imposes the highest capital gains tax rate at 42%, followed by Norway at 37.8%. Finland and France both apply a tax rate of 34%, with Ireland at 33%. In contrast, Moldova has the lowest capital gains tax rate at 6%, while Bulgaria and Romania stand at 10% each, and Croatia at 12%.

Factors Influencing High Capital Gains Tax Rates

Alex Mengden, a global policy analyst at Tax Foundation, suggests that Denmark and Norway's high capital gains tax rates are linked to their statutory personal income tax rates. This alignment may prevent individuals from disguising their labor income as capital income. However, such taxation may discourage savings and investment, as it imposes an additional layer of taxation on individuals' after-tax income intended for future savings.

France's Approach to Capital Gains Tax

France applies a flat 30% capital gains tax rate, with an additional 4% for high-income earners. Taxpayers can opt for progressive income tax rates for securities, with potential rebates based on the duration of holding the securities. However, these rebates are only applicable to securities acquired before January 1, 2018.

Finland's Progressive Capital Gains Tax

Finland distinguishes between capital and earned income, taxing capital income progressively. Capital income below €30,000 is taxed at a rate of 30%, while a 34% levy applies to taxable capital income exceeding this threshold.

Impact of Lower Capital Gains Taxes in Eastern and Southeastern Europe

Countries in Eastern and Southeastern Europe, such as Moldova, Bulgaria, and Romania, offer lower capital gains tax rates, making them attractive for business activities. Tax incentives, coupled with affordable land and labor, contribute to the appeal of these countries for various companies.

Diverse Approaches to Capital Gains Tax in Developing Countries

In developing countries, capital gains primarily stem from real estate sales due to the significant proportion of wealth tied to real estate assets. Taxes on real estate investments serve to curb speculative activities and encourage investments aligned with economic and social objectives.

In summary, while capital gains tax rates vary across Europe, high-tax countries like Denmark and Norway balance revenue generation with the promotion of savings and investment. Conversely, lower tax rates in Eastern and Southeastern Europe attract businesses, while diverse approaches in developing countries aim to channel investments towards socially productive avenues.