CEE Tax Guide 2017, 17.8.2017

If an international corporation decides to invest in any of the 19 Central and Eastern European countries, it has to count on higher taxes and expenses per employee in Greece. Investors pay the highest corporate tax (29%) here, and the VAT and contributions for social and health insurance are also high.

The lowest corporate tax, on the other hand is in Montenegro (9%) and also in Hungary (9%), though in the latter country this rate is compensated by a high VAT (up to 27%). In Macedonia (10%), however, companies even pay a minimum tax (1%) from a certain amount of turnover, or they can avoid taxation completely. Employees in Austria take home the highest gross average wage in the public sphere (2788 euros). Employers and employees in Slovakia make the highest contributions to social and health insurance (35.2%). This comes from the unique study, Mazars CEE Tax Guide 2017, which compares taxes and wages in 19 Central and Eastern European countries.

The Czech Republic is also one of the countries with the highest contributions for social and health insurance (34%). “There have been a few minor changes in the tax rates in the Czech Republic over the course of the past year, but the improved collection of taxes was one of the most important pillars of Czech government policy over the last five years. The information collected by tax administrators through new tools has led to a significant increase in in tax inspections focussing on concrete area of risky transactions in distribution chains and transactions with related parties,” stated Pavel Klein, the Leading Partner of Mazars’ Tax Department.

The study also shows that the period of large structural changes and the introduction of crisis tax measures are at an end across the region. Most of the countries have stabilised their government budgets and their populations’ consumption is growing, which gives governments room for new directions in tax policies. “Czech businessmen are slowly adapting to the legislative changes that control statements and electronic sales records have brought, and the first positive effects of these regulations in the area of tax collection are starting to be seen,” added Pavel Klein.

Hungary has the highest VAT rate in the region at 27%

Most of the countries of the CEE region that are also part of the EU have harmonised standards for the collection of VAT. Nevertheless, the rate still differs significantly from country to country. The study shows that the highest VAT rate is in Hungary, where the standard rate is at 27%, which is six percent more than in the Czech Republic. Greece has the second-highest rate in the region. In the past year it raised its already-high rate of 23% by another percentage point to the current 24%. With its 21% the Czech Republic is in the region’s average, which is between 19 – 22%. Now only Bosnia and Hercegovina has a uniform VAT rate in the region (at 17%, except for the 0% rate which is applied when exporting goods).

 

Country Standard VAT rate Corporate tax rate
Albania 20% 15%
Austria 20% 25%
Bosnia and Hercegovina 17% 10%
Croatia 25% 20%
Czech Republic 21% 19%
Estonia 20% 20%
Macedonia 18% 10%
Greece 24% 29%
Hungary 27% 9%
Latvia 21% 15%
Lithuania 21% 15%
Montenegro 19% 9%
Poland 23% 15%
Romania 19% 16%
Russia 18% 20%
Serbia 20% 15%
Slovakia 20% 21%
Slovenia 22% 17%
Ukraine 20% 18%
     
Average 21% 17%

Tab. I. Comparison of standard VAT and corporate income tax rates
Source: Mazars CEE Tax Guide 2017

Inconsistency in the calculation of corporate income tax

With its lack of uniformity in the region, the calculation of the corporate income tax contributes to the complexity of comparisons of individual values among the various countries. There is currently a twenty-percent difference between the highest and lowest rates in the region, while the average rate is around 16%. The greatest decrease in taxes took place in Hungary, where the original rates of 10% and 19% were changed into a uniform rate in the amount of 9%. Slovakia also lowered its rate, though only slightly, from 22% to 21%. The only country in the region that saw an increase in corporate income tax is Greece, which increased its rate by three percent to 29%. At 19% the Czech Republic is slightly higher than the average for the region (17%).

The minimum wage is still below average in the Czech Republic

In spite of this year’s increase of the minimum wage in the Czech Republic to 11 thousand crowns (407 euros), it is still among the lower wages in the CEE region. The regional average is around 12.5 thousand (461 euros). Employees in Ukraine clearly have the lowest minimum wage, earning only about CZK 3051 (113 euros), with Albania (161 euros) and Macedonia (195 euros) right behind Ukraine. Employees in Austria, on the contrary, have the highest minimum wage, making an unbelievable 45 thousand crowns (1677 euros). Austria does not have a minimum wage set by the state, though, but an average of the lowest wages that the employers pay their employees “voluntarily”.

 

Country Minimum wage (EUR)
Albania 161
Austria 1677
Croatia 431
Czech Republic 407
Macedonia 195
Greece 684
Hungary 411
Latvia 370
Lithuania 380
Poland 455
Romania 322
Russia 278
Serbia 247
Slovakia 435
Slovenia 805
Ukraine 113
   
Průměr 461

Tab. II. Comparison of minimum wages
Source: Mazars CEE Tax Guide 2017

Regulation of transfer pricing fighting against tax evasion

Regulations in the area of transfer pricing are becoming stricter is almost all the countries in the region. BEPS, i.e. recommendations against tax evasion that were prepared for the countries by the Organisation for Economic Co-operation and Development (OECD), play a large role in the tightening of the conditions. The main goal of thorough reporting is to provide the local tax authorities all the information required for assessing the tax risks and improving the transparency of companies.

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