European investors and businesses lose more than $5.1 billion annually to double taxation and administrative burdens caused by cross-border withholding taxes, according to a new report from the Tax Foundation analyzing the June 2026 European Commission Tax Omnibus package. The report finds that investors in Cyprus, Portugal, and Greece face the highest tax burdens on dividends received from other European countries, while withholding taxes continue to distort capital flows across the continent and prevent the EU's Single Market from achieving its goal of free movement of capital.
Investors in a broad European stock portfolio face an average inbound withholding tax rate of 5.6 percent on dividends, the report shows. Cypriots face the steepest burden at 15.1 percent, followed by Portuguese investors at 11.4 percent and Greeks at 11.3 percent. Swiss investors, by contrast, face just 2.3 percent withholding on dividends from abroad, while those in the United Kingdom pay 3.1 percent and Danes 3.4 percent. For interest payments, the average inbound rate sits at 3.4 percent, with Cyprus again topping the list at 8.5 percent, Turkey at 7 percent, and Portugal at 6.2 percent. On the outbound side, Irish businesses remit the highest withholding rates on dividends paid to foreign shareholders at 14.6 percent, followed by Greece at 14 percent, Portugal at 13 percent, and Turkey at 10.3 percent. Cyprus, Estonia, Hungary, Latvia, Malta, and the United Kingdom don't withhold taxes on outbound dividends at all.
The European Commission estimates that extending existing exemptions to remove withholding taxes on all intra-EU dividend, interest, and royalty payments—regardless of holding percentage—would raise long-run GDP by at least 0.043 percent while costing just 0.027 percent in overall tax revenue. The Tax Omnibus package proposed in June 2026 would eliminate the holding-percentage requirement that currently restricts exemptions, allowing payments between EU companies to leave untaxed in the recipient's state. The report finds European companies would save an estimated €700 million annually in compliance costs and another €700 million in opportunity costs from refund delays, while avoiding double taxation would generate €3.8 billion in tax savings.
The report explains that withholding taxes create friction because investors' income gets taxed twice—once in the country where the dividend originates and again in their home country. While investors can usually credit foreign withholding taxes against domestic taxes owed, the report notes that refund and credit procedures are often "slow, inconsistent, or limited by treaty caps," creating double taxation and administrative headaches. A German company paying €100 in dividends to a Greek investor, for example, withholds €26.37 under German law. The Greek investor can reclaim €1.37 in solidarity surtax from Germany under their bilateral treaty, but Greece then grants a foreign tax credit only up to its domestic 5 percent dividend rate. The result: the Greek investor pays 25 percent on German dividends instead of the 5 percent rate applied to domestic Greek dividends or income from countries without withholding taxes, like the UK. When these burdens pile up, investors shift money into assets with lower pre-tax returns or hold less diversified portfolios just to dodge the paperwork and tax hits.
The report argues that Belgium, Greece, Italy, Portugal, and Turkey show "consistently high burdens" across both inbound and outbound payments, while Hungary, Switzerland, the United Kingdom, and the Czech Republic offer "more favorable conditions for cross-border savings and investment." For policymakers aiming to guarantee free movement of capital, the report concludes that extending existing EU exemptions to all intra-EU payments would "address this friction directly and bring the Single Market closer to the free movement of capital it is intended to guarantee." The bottom line: Europe's withholding tax patchwork costs investors and companies billions each year, and a straightforward policy fix could unlock that capital while barely denting government revenues.