Governments in the region are increasingly relying on consumption-type taxes, corporate tax rates, and the way in which the tax base / tax is calculated, with large dispersion in the region, and employment is still expensive. In Hungary, the burden of labor has fallen, but only families benefit from discounts – says Mazars from the CEE Tax Guide 2018, this year in Central and Eastern Europe.
This publication was prepared for the sixth time by the international auditing and consulting firm. The list of participating countries has expanded from 19 to 22 last year: this year, besides the countries in the region, and in addition to Russia, Ukraine and the Baltic countries, Bulgaria, Kosovo and Germany are also new entrants.
In Mazars’ announcement, VAT is one of the most important sources of revenue for public budgets. The rules are largely harmonized, but tax rates continue to be significantly scattered. The average tax rate is around 20 per cent, while the normal VAT rate of 25 per cent and 27 per cent in Croatia and Hungary is still very high.
For efficient VAT collection, countries use modern digital technologies, such as the sectoral introduction of online cash registers, and the monitoring of freight forwarding through the Electronic Traffic Control System (ESA). In Hungary, from 2018, billing programs should also be linked to the tax administration system, automating real-time electronic data provision.
In the region, income and work-related taxes and contributions continue to decline, but employers’ total wage costs are still close to 160 percent of net wages. Hungary has somewhat improved its previous indices, but family benefits are still beneficial to family members, but Mazars continues to benefit from far-reaching discounts. Romania, Croatia and Montenegro have also been reduced from the income tax of individuals since 2018, and in Romania since 2018 the social contribution payment system has been completely restructured.
At corporate taxes, the average tax rate is slightly above 17 per cent, with the highest key in the case of a multi-currency system. However, between the lowest and highest rates, there is a difference of up to 20 percentage points and the tax base can be significantly different, so profit taxation can not be compared on the basis of tax rates alone, Mazars points out. Some countries have introduced a system that is completely different from traditional profitable taxation: in Estonia, 20 percent corporation tax has not been paid until the withdrawal of income, and from 2018 the distribution of distributed profits has become the basis of taxation in Latvia.
There are also differences in the extent to which each country will allow the continued loss and use of previous years’ losses against a positive tax base for later years. This amount can only be used for only a limited period of time of 5-7 years, sometimes only for 3-4 years, and only 6 countries will allow the limitation of losses without time limit.
The countries of the region prefer to use withholding tax on interest, dividend and royalties (up to 15 percent or even 19 to 20 percent), while Lithuania, Estonia and Hungary continue to use withholding taxes on capital gains.
In two thirds of the Central and Eastern European region, taxpayers are now allowed to produce an IFRS-based report and use it for tax purposes as well. In recent years, its spread has also been a clear trend. In more than half of the countries, the tax system supports research and development activities in some form.
The transfer pricing regime has already appeared in almost all countries’ tax systems, and now the documentary obligation is increasingly emphasized – the auditing and consulting company announces in its announcement.