Luxembourg has the lowest standard Value Added Tax (VAT) rate in the European Union at 17%. While some European countries outside the EU, such as Switzerland, may offer lower specialized rates, Luxembourg remains the consistent leader for the lowest standard VAT rate within the EU member states.
Which country in the EU has the lowest VAT rate? Luxembourg has currently the lowest VAT rate with a VAT rate of 17%. Each EU member state decides on the percentage of VAT (Value added tax) tax on the of goods and services.
When compared to the standard VAT rates of other countries within Europe, the countries where you pay the lowest VAT rates are Switzerland, Luxembourg and Turkey. For this reason, the VAT rate for your purchases from these countries will be low. This will mean a reduction in the VAT fees you receive back.
Lowest Tax Countries in Europe (2026)
France: 20% Italy: 22% Spain: 21% Luxembourg: 17% (the lowest in the EU)
VAT rates vary by EU country, typically set above a minimum of 15%, and can include reduced rates for certain goods and services. Implications for U.S. Consumers and Businesses: American travelers pay VAT included in listed prices in Europe but can reclaim it on certain purchases when leaving the EU.
The old regime provided that 70% of qualifying income from employment carried out in Italy is exempt from income tax. So only 30% of gross salary/net profit is liable to income tax. 100% of salary continues to be liable to social security under normal rules.
Top 10 European Tax Havens
All you need to do is save your “tax free shopping” slip from check out, and then mention having these receipts to your customs agent upon leaving the European Union. The agent will stamp your receipts, and direct you to either a refund services desk at the airport or a border kiosk for other forms of travel.
1. Albania. Albania is one of the cheapest countries located in Southeast Europe. It attracts expats with its low cost of living and rich culture, especially in the lively capital city of Tirana.
At the Merchant
Note that you're not supposed to use your purchased goods before you leave Europe. (Some retailers, particularly those in Scandinavia, will staple and seal the shopping bag to keep you from cheating.) If the store ships your purchase to your home, you won't be charged the value-added tax.
Who Can Claim a VAT Refund? In the USA, the opportunity to claim a VAT refund is generally reserved for foreign businesses and tourists who have incurred VAT on eligible expenses within VAT-imposing countries. US businesses may also seek VAT refunds from their business expenses in these countries.
There is no VAT refund in the UK, so don't buy in London or Scotland. France and the Netherlands have the same prices as they are EU countries. LV in France will give you 12% of the VAT back through Global Blue.
Tax-free countries in Europe (or those with minimal tax burdens for residents or businesses) include Monaco, Liechtenstein, Cyprus, and San Marino.
Save money on your VAT bill and help your business succeed with our 6 essential tips to reduce VAT expenses.
The standard VAT rate in Italy is 22%. There are also reduced VAT rates of 10% and 5%, and a super-reduced rate of 4%. The 4% rate applies to essential goods such as basic foodstuffs, books, newspapers, and certain medical supplies.
For instance, you can expect a higher VAT refund in Hungary because the country currently has the highest VAT rate in Europe with a standard rate of 27%4. Conversely, Luxembourg has the lowest standard VAT rate, which is at 17%5. So, you might see a smaller VAT refund percentage in Luxembourg.
VAT refunds let tourists get back Value Added Tax paid on goods they buy in countries like the EU, requiring forms from stores, proof of export (customs stamp at the airport before checking bags), and claiming the refund at airport desks, usually for unused items taken home, though the US doesn't offer this. The process involves getting an exemption form, keeping goods unused with tags on, getting customs to validate forms (often pre-security), and then processing the refund with operators like Global Blue, allowing for cash or credit card returns minus fees.
Malta. Malta has become a mainstay in conversations about the best countries in Europe for taxes. Whether you're a non-resident or full-time permanent resident living in Malta year-round, you'll benefit from tax deductions on foreign-earned income.
Croatia currently ranks 52 on the Corporate Tax Haven Index, which ranks the world's biggest enablers of global corporate tax abuse. Jurisdictions are ranked by their Corporate Tax Haven Index value.
There are several countries with zero income tax that attract people from across the world. These countries often have strong economies and expat friendly policies. Popular countries include the United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Bahrain, Oman, Monaco, the Bahamas, Bermuda, and the Cayman Islands.
Retiring to Italy from the U.S. involves downsides like navigating complex bureaucracy, a significant language barrier, and cultural adjustment to a slower pace, alongside potential difficulties with inconsistent infrastructure (like old buildings or driving rules) and complex dual tax filing, though costs can be lower and lifestyle excellent. Key challenges include the lengthy visa process, understanding Italian tax laws, and potential isolation without Italian fluency, especially outside major cities, with top doctors often in the North.