Page 5 - Mazars Central and Eastern European tax guide 2023

Tax review 2023 officially known as Directive (EU) 2016/1164 and Finally, it is also interesting to see how governments try
to consolidate state budgets during the energy crisis
2017/952. The greatest challenge for many EU Member
An overview of taxation system within CEE States has been the adoption of these EU rules. For caused by the war in the Ukraine; Hungary and the Czech
Republic introduced co-called windfall taxes on specific
example, as a consequence of the ATAD, the previous
rules on thin capitalisation were increasingly replaced sectors that should be in effect for two years only.
or supplemented by the method tied to EBITDA-based
interest limitation calculation. The standardisation Transfer pricing (TP)
of offshore (controlled foreign corporation, CFC) rules can
Introduction in some of the former Yugoslav countries such as Albania also be traced back to the ATAD. Exit taxation regulations The OECD’s BEPS (“Base Erosion and Profit Shifting”)
and Bulgaria, the minimum wage is around EUR 600- have also appeared in many countries. initiative drew attention to the fact that tax authorities
We are proud to announce that, thanks to the cooperation 800 in a significant part of the region (Czech Republic, need to concentrate more on possible cross-border
of the Mazars offices, this is now our eleventh publication. Slovakia, Hungary, Poland, Romania, Greece, Croatia and Without exception, CEE countries applying traditional transactions within corporate groups. Transfer pricing
This brochure aims to provide current information the Baltic States). This is still incomparable with the values corporate taxation allow the carrying forward of losses regulations had previously appeared in the tax system
on taxation in the 22 European states concerned, now of Slovenia (EUR 1,200) or those of Germany and Austria acquired in previous years and putting them against the of practically all countries. Starting from 2023, Hungarian
supplemented by 3 Central Asian countries, effective (over EUR 2,000). The average wage level in the private positive tax base of later years. This amount can only taxpayers are also obliged to submit a transfer pricing
as of January 2023. be used for that purpose during a predetermined period, related report as part of their annual corporate income tax
sector, which shows similar differences in the region, did
We strongly believe that this publication will help investors not increase significantly in the last year, on average only usually 5 to 7 years, but in some places the limit is set return. In addition, taxpayers operating in the CEE region
at 3 to 4 years.
also had to participate actively in the implementation
understand the complexities of the various CEE tax by 5%. This is surprising considering high inflation, which of the CBC reporting system (OECD’s “country-by-country
regimes, as well as highlight the latest developments and is 9.2% on average in the euro zone but more than 15% The states of the region readily apply a withholding reporting”, which promotes transparency by providing
trends characterising the tax regime of a given country. in Hungary and in the Baltics. tax on interest, dividend, and royalty revenues local tax authorities with the information necessary
(at a rate of 15%, or even 19-20%). Naturally, these
Employment Taxes Value-added tax can only be applied in the light of the provisions of the for evaluating tax risks). As of 2024, even Moldova will
corresponding tax agreements. However, Latvia and introduce a mandatory TP documentation obligation.
The level of taxes on income and employment has Due to EU regulations, the rules of value-added tax are Hungary still do not generally apply withholding taxes The next milestone in international taxation will certainly
dropped in the last years; however, their extent shows harmonised for the most part, and many non-EU Member on capital income. be the introduction of minimum global taxation,
significant differences in the countries in question. Half States are also trying to align themselves with the based on the so-called Pillar II framework of the G20/
of the countries apply a flat-rate personal income tax Community system. However, the applicable tax rates In most countries in the CEE region, taxpayers are allowed OECD. According to the proposal of the European
(such as Bulgaria, Hungary, Romania, and Ukraine; ranging show significant differences. In 2023, general tax rates to prepare an IFRS-based individual financial statement Commission, a set of complicated and interlocked rules
between 10 and 20%), while others prefer progressive averaged around 20% in the region. The normal VAT and use it for tax purposes as well. Many CEE countries will be put in place to ensure minimum effective taxation
tax rates (e.g. Austria, Germany, and Slovenia, as well rate of 25% and 27%, effective in Croatia and Hungary offer tax incentives to encourage companies to invest for corporate groups with an annual revenue of at least
as Croatia and Slovakia) where the upper tax rates are respectively, still count as especially high. Examining the in research and development (R&D). EUR 750 million. Based on these rules a so-called “top-
often as high as 50%. reduced tax rates provides an even more diverse image. It is good to keep in mind that corporate group taxation up tax” should be collected if the effective tax rate
Many countries have introduced two reduced rates, which
The costs of social taxes and contributions burdening is the maximum permitted by Directive 2006/112/EC is available in Hungary, Austria, Germany, Poland, Romania, in a given jurisdiction is below 15%. It is clear that there are
employers is on average 15% of the gross salaries (VAT Directive). Serbia, Bosnia and Herzegovina, and Montenegro. increasingly few opportunities for multinationals to engage
in the region, though significant differences (of over in profit-shifting.
30 percentage points) are apparent between the lowest An increasing number of jurisdictions in the region are
employer burdens (Lithuania, Kosovo, and Romania: implementing new systems to improve compliance and
no more than 5%) and the highest employer contributions reduce fraud, such as electronic invoicing, online VAT Countries included in the publication
(e.g. Austria and Slovakia: around 30 and 35%, registration and filing, and real-time reporting. Hungary
respectively) in this case as well. This only shows that some has introduced an online invoice reporting system, which
jurisdictions prefer to levy payroll taxes on employees aims to improve VAT compliance. The system requires
rather than on employers, which makes systems hard companies to send invoice data to the tax authority in real-
to compare based on tax rates alone. time. Poland has implemented the Standard Audit File for
Tax (SAF-T), which is a standardised XML file format for
A much more suitable way of comparing systems is to look exchanging accounting data between businesses and tax
at the so-called tax wedge. This is the ratio between the authorities.
total amount of taxes and contributions paid in connection
with employment and the corresponding total labour costs Corporate income tax
for the employer. The tax wedge shows the percentage
of labour costs that, in any form, go to the state budget. Various countries emphasise different factors when taxing
In 2023, this indicator varies between 14 and 48%, with corporate profit. Countries in the region typically keep the
an average of 36%, which is not far from the OECD average. headline CIT rates around 15-20%. The reality is, however,
However, in the case of EU Member States in the CEE often more complex, as a number of countries, like Poland
region, the average of 41% can be considered as high. and Slovakia, also have beneficial tax rates for smaller
Of course, due to progressive tax rates, the value may taxpayers. Although Hungary has the lowest general rate
be somewhat lower in the case of lower income rates and of 9%, it should also be noted that in certain sectors the
higher in the case of higher rates. overall profit tax rate may be as high as 50%.
All of the above should obviously be evaluated As of 2022, there is only one country where the profit
in consideration of the wage level in the given country. tax rate has been reduced (in Austria, from 25% to 24%).
This is the factor where the countries of the region display The European Union consciously strives to limit the
the most significant spread. While the minimum wage tax race and to prevent the use of the most harmful tax
in the Central European countries of Kosovo and Moldova avoidance techniques. An important tool in this effort was
is no more than EUR 200 and it is around EUR 300-500 the Anti-Tax Avoidance Directive (ATAD and ATAD II),
4 Mazars Central and Eastern European tax guide 2023 Central and Eastern European tax guide 2023 Mazars 5