We explore the effects of effective taxation and institutional quality on sectoral FDI. Our analysis comprises European countries and we use data from 2002 to 2020. We employ a GMM approach and show that a rise in both apparent taxation and tax differential reduces sectoral FDI flow while soaring tax differential increase FDI stock. Among the institutional variables, tertiary enrollment attract FDI and secondary attainment has opposite results depending on the sectoral FDI. Our findings indicate that government should lower taxation for more FDI flows and strengthen tertiary and secondary enrollment.