This paper sheds light on the relationship between economic complexity and income inequality considering the role of institutions based on data over the period 1996–2020 across 52 developed and developing countries from Europe and Cent­ral Asia, and the Middle East and North Africa. Our contribution to the existing li­terature is twofold. First, we analyse the relationship between economic complexity and income inequality considering the institutional dimension and studying various components of institutions. Second, we take into account the non-linear form of relationship between economic complexity and income inequality, as well as hete­rogeneity of this relationship across groups of countries. We address endogeneity by employing a fixed effect two stage least squares model with instrumental variab­les. Our results demonstrate that for the overall sample of countries, an increase in a country’s economic complexity results in higher level of income inequality. However, the impact of economic complexity on income inequality is heterogeneous across groups of countries, with a U-inverted relationship in countries of Euro­pe and Central Asia. Moreover, economic complexity combined with the high level of institutional quality can reduce income inequality. Therefore, we conclude that the improvement of all components of institutional structure will facilitate a decrease in income disparities. Our analysis shows that better educational level leads to lower income inequality. Besides, our findings emphasise the need for policy ensuring more equal gains from economic development and international trade.