Taxes in Europe for Americans come in two layers: whatever the country you live, work, or invest in charges locally, and whatever the IRS still expects on top. Local rates vary widely. Standard Value Added Tax runs from 17 to 27 percent across the EU, top personal income tax rates span 10 percent to over 60 percent, and corporate rates fall between 9 and 35 percent. As a U.S. citizen or green card holder, you owe U.S. tax on worldwide income no matter where you live, but exclusions, credits, and totalization agreements keep most people from paying the same tax twice.
Local Income Tax Where You Live
Most European countries use progressive income tax brackets. Rates climb as earnings rise, and only income above each threshold is taxed at the higher rate. Bulgaria and Romania sit at the low end with flat 10 percent rates on all personal income. Denmark’s combined top rate reaches 60.5 percent, France’s 55.4 percent, and Austria’s 55 percent.1Tax Foundation. Top Personal Income Tax Rates in Europe, 2026 Most of Western Europe lands between 40 and 55 percent at the top bracket.
Nearly every country provides a tax-free personal allowance, so the first few thousand euros of income owe nothing. Some countries add local or municipal income tax on top of the national rate. Filing deadlines are usually in the spring, but they differ by country, as do the procedures.
Investment gains are handled separately in most places. Capital gains rates range from zero to 42 percent. Denmark taxes long-term gains at up to 42 percent and Norway at 37.8 percent. Belgium, Switzerland, Luxembourg, and Greece generally do not tax long-held capital gains on shares at all. Many countries reduce or exempt gains on assets held for longer periods, and real estate is often treated differently from stocks and bonds.
Value Added Tax on What You Buy
VAT is built into shelf prices across Europe rather than added at the register. EU law requires each member state to keep a standard rate of at least 15 percent.2European Parliament. Highs and Lows: VAT Rate-Setting in the European Union As of January 2026, Luxembourg’s 17 percent is the lowest and Hungary’s 27 percent the highest, with most countries between 20 and 25 percent. Reduced rates apply to essentials such as food, books, children’s clothing, and medical supplies, and a small set of super-reduced rates below 5 percent apply to narrow categories like France’s 2.1 percent on certain pharmaceuticals.3Your Europe. VAT Rules and Rates: Standard, Special and Reduced Rates Non-EU European countries like Switzerland and the United Kingdom set their own rates independently.
Visitors from outside the EU can reclaim VAT on goods they take home. Ask the retailer for a VAT refund document, have it stamped by customs before leaving the EU, and export the goods within three months of purchase.4European Commission. VAT Refunds Minimum purchase amounts vary; some countries require at least €50 in a single transaction. Hotel stays, restaurant meals, and other services generally do not qualify. Once you become a resident, the refund program no longer applies to you.
Social Security Contributions and How Americans Avoid Paying Twice
European workers and their employers pay mandatory social security contributions that fund pensions, public healthcare, and unemployment benefits. The combined employer-plus-employee rate typically runs 20 to 40 percent of gross salary, though some countries go higher. Contributions are withheld at the source by the employer.
Without an agreement, an American working in Europe could owe social security taxes to both the U.S. and the host country on the same earnings. Totalization agreements exist to prevent that. The United States has signed them with more than 20 European countries, including the United Kingdom, Germany, France, Italy, Spain, and the Netherlands.5Social Security Administration. U.S. International Social Security Agreements Under these agreements you generally pay into one system at a time, usually the country where the work is performed. Temporary assignments of five years or less often stay under the home country’s system.
The agreements also let you combine credits from both countries to qualify for benefits. Eight years of U.S. work plus seven years in Germany can together satisfy each country’s minimum eligibility, with each system paying a partial benefit based on the time worked under it.5Social Security Administration. U.S. International Social Security Agreements
Investment Withholding and Property Taxes
Non-residents earning European-source income, such as dividends from a local company, rental income, or professional fees, generally face withholding tax at the source. Dividend withholding commonly runs 10 to 30 percent. Bilateral tax treaties between the U.S. and the source country often lower the rate to 5 or 15 percent and allow you to credit the foreign tax against your U.S. bill.
Most European countries do not impose a broad net wealth tax, but many charge annual real estate or property tax at modest local rates. A few countries tax wealth directly: Spain taxes net wealth at 0.2 to 3.5 percent depending on the autonomous community; France applies a real estate wealth tax once your net property holdings exceed €1.3 million; Norway and Switzerland levy annual net-asset taxes generally below 1.5 percent. Owning property anywhere in Europe means expecting a local property-based levy regardless of whether a standalone wealth tax exists.
What Americans Still Owe the IRS
The U.S. taxes citizens and permanent residents on worldwide income no matter where they live. You file a U.S. return every year you meet the filing thresholds, even if all your income is foreign and already taxed abroad. Several provisions reduce or eliminate the double bill, but each has its own form and its own rules.
Foreign Earned Income Exclusion
The foreign earned income exclusion is the main relief. For the 2026 tax year you can exclude up to $132,900 of foreign earned income from U.S. taxable income if you meet either the bona fide residence test or the physical presence test. A separate foreign housing exclusion covers up to $39,870 of qualifying housing costs above a base amount.6Internal Revenue Service. Figuring the Foreign Earned Income Exclusion Both are claimed on Form 2555. Income above the exclusion stays subject to U.S. tax, though foreign tax credits usually cover the European tax you already paid on that portion.
FBAR and FATCA Account Reporting
Living in Europe usually means holding local bank accounts, and those accounts trigger separate U.S. reporting duties. If the combined balance of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts with FinCEN by April 15, with an automatic extension to October 15.7Financial Crimes Enforcement Network. Report Foreign Bank and Financial Accounts Penalties for missing the FBAR reach $16,536 per report for non-willful violations and the greater of $165,353 or 50 percent of the account balance for willful violations.
The Foreign Account Tax Compliance Act adds a second filing at higher thresholds. Americans living outside the U.S. must file Form 8938 if their foreign financial assets exceed $200,000 on the last day of the tax year or $300,000 at any point in the year. For married couples filing jointly, the thresholds double to $400,000 and $600,000.8Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements FBAR and Form 8938 are separate filings with different thresholds. Many Americans in Europe need both.
The PFIC Trap on European Mutual Funds and ETFs
One of the most expensive surprises involves buying a European mutual fund or exchange-traded fund. The IRS generally classifies these as Passive Foreign Investment Companies. Gains and certain distributions are treated as “excess distributions,” allocated across your entire holding period, taxed each year at the highest individual rate, and hit with an additional interest charge on top.9Internal Revenue Service. Instructions for Form 8621 After a few years of holding, the effective rate on the gain can exceed 50 percent.
A Qualified Electing Fund election or a mark-to-market election on Form 8621 can soften the treatment, but both require annual reporting, and the QEF option depends on the fund providing income data most European funds do not supply. Most U.S. tax advisors recommend that Americans in Europe hold their investments through U.S.-domiciled funds and use European accounts only for cash and day-to-day banking.