MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018

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MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
TA X G U I D E 2 018   1

MAZARS
CENTRAL AND
EASTERN EUROPEAN
TAX GUIDE
2018
6TH
EDITION

                  Albania | Austria | Bosnia and Herzegovina
             Bulgaria | Croatia | Czech Republic | Estonia | FYROM
                 Germany | Greece | Hungary | Kosovo | Latvia
              Lithuania | Montenegro | Poland | Romania | Russia
                     Serbia | Slovakia | Slovenia | Ukraine

          TAX | LAW | AUDIT | OUTSOURCING
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
2   TA X G U I D E 2 018

TA X BE YOND BORDERS -
AN OVERVIEW OF THE MULTI-FACE TED
REGIONAL TA X L ANDSCAPE / 0 4
A LBA NI A / 06
AUS T R I A / 08
BOSNI A A ND HER Z EGOV IN A / 10
BULGA R I A / 12
CROAT I A / 14
C Z E CH R EPUBLIC / 16
E S T ONI A / 18
F Y ROM / 20
GER M A N Y / 22
GR EE CE / 2 4
HUNGA RY / 26
KOSOVO / 28
L AT V I A / 30
LI T HUA NI A / 32
MON T E NEGRO / 3 4
POL A ND / 36
ROM A NI A / 38
RUS SI A / 4 0
SER BI A / 4 2
SLOVA K I A / 4 4
SLOV E NI A / 4 6
UK R A INE / 4 8
SUMM A RY / 50

                           “CREATING
CON TAC T S / 53

                           SHARED
                           VALUE”
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
TA X G U I D E 2 018   3

                                               WELCOME TO THE
                                                 CEE TAX GUIDE
                                                          2018
 W
               elcome to Mazars’ sixth annual Central and Eastern
               European (CEE) tax guide.
               The main purpose of this guide is to provide you with an
               overview of the tax systems in the CEE region. I would also
highlight the expansion of our coverage: from 1th January 2018 we are
proud to report that the guide has increased its scope to cover 22 CEE
countries.
As always, this publication strives to help investors understand the
complexities of the various CEE tax regimes. In the first section, the tax
systems of the CEE region are presented country-by-country, based on data
provided by the relevant Mazars offices. At the end of this guide you will find
summary tables that allow side-by-side comparisons of the relevant tax
environments.
Before making any strategic business decision further discussion and
detailed analysis is always required. To that end, we have included direct
contact information for our offices and experts. Please feel free to get
in touch with the relevant people with any questions or clarifications
you might have.

We hope you find this guide useful.

                                                                                  Sándor Szmicsek
                                                                                  Partner
                                                                                  Tax and legal services
                                                                                  Mazars Hungary
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
4   TA X G U I D E 2 018

TAX BEYOND BORDERS - AN OVERVIEW OF THE
MULTI-FACETED REGIONAL TAX LANDSCAPE
VAT collection goes digital, employers’ contributions declining

T
       his is the sixth occasion that
       Mazars offices around Central        Value-added tax
       and Eastern Europe (CEE) and
       beyond have cooperated to           Thanks to the positive economic          A persistent trend is that states
       produce and publish our report on   climate of recent years, in most         attempt to collect value-added taxes
       current taxation in the region.     CEE states the government budget         more efficiently with the help of digital
In actual fact, this 2018 summary          balance improved and consumption         technology. Efforts are in place for the
extends well beyond the CEE region;        has started to increase. Governments     identification of transactions for which
each year we have added new countries      try to build upon this momentum by       due taxes were not paid, the reduction
to the initiative and it now numbers 22    giving an increasingly large role to     of tax evasion and the “whitening”
participants, with Bulgaria, Kosovo and    consumption-type taxes when planning     of the shadow economy. Further
Germany the latest entrants.               fiscal revenues. Accordingly, one of     measures include the introduction of
A quick look at the map on the previous    the most important sources of income     on-line cash registers and increased
page reveals that the publication also     for the budgets is value added tax.      attention to the monitoring of
covers the Visegrad (V4) countries, as     Owing to EU regulations the rules are    transactions involving the transport of
well as South-Eastern Europe, Russia,      mostly harmonized, but the tax rates     goods. From 2018 in Hungary invoicing
Ukraine and the Baltic States.             applied vary widely across the region.   software must be connected to the tax
Regarding the content, we can              The average of normal VAT-rates is       authority’s system, which will result
safely declare that investors              around 20%; in 2018, only Montenegro     in the supply of relevant real-time
interested in the region will receive a    increased its rate by a few percentage   electronic information.
comprehensive overview of the taxation     points. The 25% and 27% rates in
conditions in the CEE region. Our          Croatia and Hungary, respectively, are
publication also allows a comparison       still particularly high.
of the fundamental factors of
competitiveness.

                           “Significant changes have been introduced in
                            the Romanian tax legislation in the last period of
                            time below some of the highlights.
                            • From the 1st of January 2018 approximately
                            20% of the Social Security Contributions have
                            been transferred from the employer to the               “Over the last few years the Slovak
                            employee which makes the gross to net salaries           tax system is becoming stricter
                            to be more transparent.                                  in the area of international
                            • In addition the split VAT payment system as            taxation including transfer pricing.
                            introduced in 2017 continues to be applicable            The current trend is taking a closer
                            however for most business on an optional basis,          look at substance requirements
                            being mandatory only for taxpayers under insolvency      as well as at beneficial ownership.
                            procedures or with outstanding VAT liabilities.          During the course of tax audits
                            Which is intended to improve VAT collection.             in the area of transfer pricing,
                            • The so called micro-company has become more            standard documentation is often
                            beneficial as the revenue threshold is increased to      regarded as insufficient proof
                            EURO 1M and when having 1 employee the tax on            by Slovak tax authorities. More
                            revenue is 1%.                                           extensive materials and additional
                            • Romanian Transfer Pricing audit by the Tax             documents are requested
                            Authorities are intensifying which gives good            frequently.”
                            grounds to concluded APA’s. In addition part of ATAD
                            has been implemented from the 1st of January 2018”      Günter Oszwald/ Tax Partner/
                                                                                    Slovakia
                            Edwin Warmerdam/ Partner / Romania
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
TA X G U I D E 2 018     5
  “Following BEPS Actions’ adoption, the Greek Tax
   Authorities are focusing on the strict implementation
   of anti-abuse provisions, preventing tax evasion
   and artificial arrangements especially through
   preferential tax jurisdictions in the region. The tax
   rates remain high and the business environment is
   tight, however some recent decisions of the Greek
   Supreme Court in the field of tax residency for
   individuals and statute of limitation for the unaudited
   years gave to the taxpayers an optimistic feeling.”

   Theodoros Kintis/ Director/ Greece

                                                                                      Estonia and Hungary do not impose a
                                           Across the other CEE countries it is       withholding tax on capital gains.
 Taxes on                                  increasingly apparent that different       A clear trend of recent years is the

 employment
                                           emphasis is placed on taxing               acceptance of IFRS-based financial
                                           corporate incomes. The difference          statements: in two-thirds of the region
                                           between the lowest and the highest tax     taxpayers are allowed to prepare IFRS-
                                           rates is now less than 20 percentage       based separate financial statements
The proportion of taxes and                points. We again have one country          and to use these also for taxation
contributions on employment                where the corporate income tax rate        purposes. Finally, it should be noted
continues to decrease. Despite             decreased by a few percentage points       that the tax systems of more than
these changes, the total wage cost         (Croatia), while in another there was      half of the countries surveyed support
of employers in the region is still        a comparable increase (in Slovenia).       research and development (R&D)
approximately 160% of the net wages.       Overall, the average corporate income      activities in some form.
It should be noted that Hungary            tax rate in the CEE region is a little
has made progress in reducing the          over 17% (calculating with the highest
large burden on employers. Effective
2018, the Romanian system of social
                                           rate in case of countries where several
                                           rates are used).
                                                                                       Transfer pricing
contributions has been completely          All of the CEE countries with
overhauled. Further, Romania, Croatia      traditional income tax schemes allow       The BEPS (“base erosion and profit
and Montenegro each found ways to          losses generated in previous years to      shifting”) initiative of the OECD
decrease personal income tax rates.        be carried forward and used against        alerted tax authorities to concentrate
The most important challenge that          the positive tax base of subsequent        more on intra-group or cross-
the CEE region must face in the near       years. Generally, this amount can          border transactions. Transfer pricing
future is increasing labour shortages.     only be used for a limited period of       regulations have earlier appeared in
How government measures aimed at           time, usually 5-7 years, but in some       the tax systems of almost all of the
combatting this problem will impact        countries only for 3-4 years. Only six     countries concerned, and now there is
employment costs remains an open           countries allow losses to be carried       an increasing emphasis on the related
question.                                  forward indefinitely.                      documentation obligations. The
                                           The majority of the countries examined     fundamental aim of the “country-by-

 Corporate                                 used some kind of interest limitation
                                           rule, which determines what part of
                                                                                      country reporting” (CBC-R) required
                                                                                      by OECD is to improve transparency by

 income taxes                              the interest paid on corporate loans
                                           can be deducted from the income
                                                                                      way of providing local tax authorities
                                                                                      with the information necessary for
                                           tax base. Thanks to the EU’s Anti          assessing tax risks. In the past year,
Methods of calculating the tax base        Tax Avoidance Directive (ATAD),            taxpayers in the CEE region had to
vary across the region, and some of        the earlier thin capitalisation rules      actively participate in launching the
the countries have also introduced tax     are increasingly being replaced by         CBC reporting system.
schemes that are altogether different      methods linked to EBITDA-based
from traditional, profit-based taxation.   calculations. The standardisation of
Earlier, only Estonia had its own,         the Controlled Foreign Company (CFC)
unique system, whereby companies           rules is also due to the same directive.
did not have to pay the 20% corporate      States in the region have a penchant
income tax as long as there was            for imposing withholding taxes on
no withdrawal of income from the           payments of interest, dividends and
company. From 2018, Latvia chose this      royalties (at rates of 15%, or even 19-
same path, and also made distributed       20%). Naturally, these may be applied
profits the tax base.                      with attention to the provisions of
                                           the relevant tax treaties. Lithuania,
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
6          TA X G U I D E 2 018

ALBANIA
CORPORATE TAXES
AND OTHER DIRECT TAXES
Resident companies are subject to cor-                              The gross amount of interest, royalties,                      2018 is triggered when annual turnover
porate income tax on their worldwide in-                            dividends, and shares of partnerships’                        exceeds ALL 5 million (approximately
come, while non-resident companies are                              profits paid to non-resident companies                        EUR 36,000). From 01 April 2018 the
taxed only on their income derived from                             is subject to a withholding tax of 15%,                       threshold for VAT registration will be ALL
sources in Albania. Resident companies                              unless a Double Tax Treaty (DTT) provides                     2 million (approx. EUR 14,800) Persons
and sole traders having an annual turno-                            for a lower rate. Albania has established                     involved in import or export activities
ver above ALL 8,000,000 (EUR 57,000) are                            agreements with 41 countries for                              and taxpayers supplying professional
subject to corporate income tax. Capital                            avoiding double taxation. 39 of them are                      services must register for VAT regard-
gains, dividends, interests, and royalties                          ratified and currently in force.                              less of the amount of turnover.
are included in the income of compa-
nies and are taxed as part of corporate                                                                                           Customs duty in the Republic of Albania
income tax. Income tax is assessed on a
                                                                    VAT AND OTHER                                                 is applied by the custom authorities
current-year basis at the rate of 15% and                           INDIRECT TAXES                                                on the import of goods. The liability to
5% for the entities which operate in pro-                                                                                         pay the duty is always on the importer
duction and development of IT software’s                            The new law of VAT entered in force in                        of goods, but it is added to the cost of
activities. The assessment of CIT is based                          January 1, 2015 has been harmonized                           goods and in this way it is finally passed
on the FS prepared in accordance with                               with the “acquis communautaire” in                            on to the consumers. The customs
the National Accounting Standards or                                almost all respects. Any person (entity                       duty rates range between 0% and 15%,
IFRS, subject to certain adjustments for                            or individual) that makes supplies in                         depending on the type of goods and the
tax purposes as specified in the Albanian                           the course of the person’s independent                        country of the origin.
Tax Laws and other supplementary legal                              economic activity is required to pay VAT.
acts. Fiscal losses may be carried for-                             For domestic supplies and for services                        Local taxes consist of different catego-
ward up to three consecutive years. The                             subject to the reverse-charge mecha-                          ries of taxes
law does not provide for consolidated tax                           nism. The obligation to register for VAT
returns. Each company forming part of a                             purposes and charge VAT until 31 March
group must file a separate tax return.

 TRANSFER PRICING IN ALBANIA                                                                             VAT OPTIONS IN ALBANIA                           Applicable / limits
                                                                                                         Distance selling                                           N/A
 Arm’s length principle                                              since 1998                          Call-off stock                                             N/A
 Documentation liability                                             since 2014                          VAT group registration                                     N/A
 APA                                                                 since 2014                          Cash accounting                                            N/A
 Country-by-Country liability               No                                                           Import VAT deferment                                       N/A
 Master file-local file (OECD BEPS
                                            No                                                                                                        for all services from non
 13) applicable
                                                                                                         Local reverse charge                         resident entities that are
 Penalty                                                                                                                                            subject to VAT in their country
           lack of                                ~ Documentation submited on delay -EUR 70 / for        Option for taxation
       documentation                                           each month of delay
                                                                                                         letting of real estate
                                                    0.06% on daily bases (not more than 365 days)
           tax shortage                                                                                  supply of used real estate                                 N/A
                                                    on tax underpayment + late payment interest
                                                                                                         VAT registration threshold*                       EUR 14,800/year**
                                                   direct or indirect control or common managing
 Related parties                       50% <
                                                                        director
 Safe harbours                                   Rational value added service from 5% to 15% mark up   * Persons involved in import or export activities and taxpayers who
                                                                                                        supply professional services must register for VAT regardless of the
 Level of attention paid by Tax Authority                                                               amount of turnover.
                                                                                                       **This limit of threshold for VAT registration is in force from 01 April 2018.
                                                                           5/10
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
TA X G U I D E 2 018   7

                                  MAZARS SHPK,
                                  Rr. Emin Duraku,
                                  Pall. “Binjaket”, Nr.5, Tirana
                                  Albania
          MAZARS                  Phone: +355 (0) 42 278 015
       IN ALBANIA                 www.mazars.al

PERSONAL INCOME TAX /
SOCIAL SECURITY SYSTEM
 Mandatory social security and health insurance                                    Employed persons are subject to income tax on remu-
 contributions are due on employment income. The                                   neration and all benefits received from employment.
 social security contribution is calculated on a monthly                           Entities are required to withhold personal income tax
 gross salary, from a minimum amount of ALL 24,000                                 from the gross salaries of their employees. In Albania
 (approximately EUR 178) to a maximum amount of                                    a progressive rate is applicable since 2014; no tax is
 ALL 105,850 (approximately EUR 784). Social contri-                               applicable up to a monthly salary of ALL 30,000; above
 bution payable by the employer is 15%; while the rate                             that 13% applies between ALL 30,000 and 130,000.
 payable by the employee is 9.5%. The health insurance                             Above that level ALL 13,000 plus 23% of the amount
 contribution rate is 1.7% for both the employer and the                           above ALL 130,000 is payable.
 employee.

                                                                                 Average wage in
  WAGE-RELATED TAXES IN ALBANIA                    Minimum wage
                                                                                  private sector

  Exchange rate ALL / EUR 135                 in EUR             in ALL         in EUR      in ALL
                                                  178            24 000           407       55 000
  TOTAL WAGE COST                                 207         116,70%             475     116,70%
  Social Contribution tax                           27          15,00%             61      15,00%
  Health Insurance Contribution                      3           1,70%              7       1,70%
  GROSS SALARY                                 177,78         100,00%           407,41    100,00%
                                                                                                                Contact:
  Personal income tax*                                -          0,00%             24      13,00%
                                                                                                                Teit GJINI
  Employees’ Social contributions                   17           9,50%             39       9,50%               Managing Partner
  Employees’ Health contributions                    3           1,70%              7       1,70%               Mobile : +355 (0) 29 30 37 456
  NET SALARY                                      158           88,80%            337      82,79%               E-mail : teit.gjini@mazars.al

*Salary 0 -30,000 ALL PIT rate 0%.
 Salary 30,001 -130,000 ALL PIT rate 13% of the amount over 30,000 ALL.
 Salary over 130,001 ALL PIT 13,000 All + 23% of the amount over 130,000 ALL.
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
8          TA X G U I D E 2 018

AUSTRIA
                                                                      Thin capitalization is not subject to                    Losses from nonresident companies
CORPORATE TAXES                                                       any specific regulations. However,                       can be used in Austria (again, the 75%
AND OTHER DIRECT TAXES                                                in order to avoid insolvency, the                        limitation is applicable and the foreign
                                                                      reorganization law stipulates                            losses have to be calculated by applying
The Austrian corporate income tax is                                  guidelines. The standard tax rate on                     Austrian accounting rules if extensive
flat with a rate of 25%. The Austrian                                 capital gains is 27.5%. Dividends paid                   mutual assistance exists. These losses
Corporation Tax Act defines the tax                                   out from resident companies to the                       can be subject to a recapture in cases
framework for corporations, setting an                                resident shareholder (not individuals)                   of liquidation or if they are used
annual minimum tax of EUR 3,500 for                                   in Austria are exempt regardless of                      abroad.
public companies (AG) and a minimum                                   the participation percentage. Several
tax per year of EUR 1,750 for limited                                 important exemptions exist, such as an
                                                                      international participation exemption
                                                                                                                               VAT AND OTHER
liability companies (GmbH). These
minimums are to be considered as a tax                                for dividends from non-resident                          INDIRECT TAXES
in advance, and as such, the amounts                                  companies. These dividends are tax free
can be set off against any future                                     if a minimum of 10% direct or indirect                   The general rate is 20% for the sale of
corporate tax obligation. The company’s                               shareholding has existed for at least                    goods and services. A reduced rate of
profits are computed by summing up                                    one year (applicable also for less than                  10% is used for agricultural products
the income generated by business                                      10% shareholding if extensive mutual                     and rentals with a residential purpose
activities performed, the passive income                              assistance exists with such countries).                  (in certain cases 13% for entertainment,
and the capital gains. In principle, all                              Royalties and licenses are also subject                  art). Exemptions are in place for banking
expenses linked to the conduct of the                                 to exemptions in accordance with tax                     transactions, and no VAT is levied on
business are deductible. Losses can                                   treaties and EU directives; otherwise                    exports. Entrepreneurs with annual
be carried forward indefinitely (but                                  the standard tax rate is 20%. Austria,                   sales below EUR 30,000 are exempted
only 75% of one year’s profit can be                                  with 90 tax treaties, offers double                      from VAT obligations. Non-residents
offset), carry back is not permitted.                                 taxation conventions with a large                        trading in Austria are also subject
Incentives concerning R&D are provided                                number of countries.                                     to registration. Monthly returns are
in the form of a 14% premium in                                       Austria has a group taxation regime:                     electronically recorded, and annual
cash for certain types of expenditure.                                profits and losses of the group                          returns are to be completed by 30
An expert report from the FFG                                         members are attributed to the group                      June of the following year. Companies
(“Forschungsförderungsgesellschaft”) is                               holder and the aggregated balance                        represented by a tax advisor can have
compulsory to request this tax incentive.                             is subject to taxation.                                  the deadline substantially extended.

 TRANSFER PRICING IN AUSTRIA                                                           VAT OPTIONS IN AUSTRIA                            Applicable / limits
 Arm’s length principle                                  since 1988                    Distance selling                                    EUR 35,000/year
 Documentation                                                                         Call-off stock
                                                     since 1988 / 2016
 liability
                                                                                       VAT group registration
 APA                                                     since 2011
                                                                                       Cash accounting*                                    EUR 700,000/year
 Penalty
                                                                                       Import VAT deferment
 lack of
                                             CbCR not provided up to KEUR 50                                                   gas, electricity, heating, emission quotas,
 documentation
                                                                                       Local reverse charge                   mobile phones, game consoles, construction
                                            late payment interest if fraud: fiscal                                               services, scrap, compulsory auction
 tax shortage
                                                       penal code                                                                        of immovable property
 Related parties              20% <             direct or indirect ownership           Option for taxation
 Safe harbours                    No                                                   letting of real estate
 Level of attention paid by Tax Authority                    increasing                supply of used real estate
                                                                            8/10       VAT registration threshold                          EUR 30,000/year
                                                                                     * Not applicable for capital companies
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
TA X G U I D E 2 018     9

                                                                                       MAZARS GMBH
                                                                                       Am Heumarkt 10
 PERSONAL                                                                              1030 Vienna
 INCOME TAX /                                                                          Tel : +43(0) 1 367 16 67 0
 SOCIAL SECURITY                                               MAZARS                  Fax : +43(0) 1 367 16 67 20
 SYSTEM                                                                                office@mazars.at
                                                            IN AUSTRIA                 www.mazars.at
The Austrian income tax rate is
 progressive (maximum of 55%).
The personal income tax progression
 adds up as follows:
• annual income up to EUR 11,000
  is not taxed,
• from the 11,001st to the 18,000th Euro
  earned, the marginal tax rate is 25%
• from the 18,001th to the 31,000th Euro
  earned, the marginal tax rate is 35%,
• from the 31,001st to the 60,000th Euro                     1. Salaried employees:                                       2. Self-employed persons:
  earned, the marginal tax rate is 42%,
• from the 60,001st to the 90,000th Euro                     Social security contributions are partly                    For self-employed persons also a
  earned, the marginal tax rate is 48%,                      paid by the employee and partly paid by                     maximum contribution base is in
• from the 90,001st Euro earned, the                         the employer. The base is the monthly                       use (2018: EUR 5,985 per month and
  marginal tax rate is 50%,                                  gross salary and special payments.                          EUR 71,820 per year). Based on the
• part of the earnings which exceeds                         Generally, a maximum contribution                           maximum contribution base the social
  1 mio. Euros is taxed with 55%.                            base is in use (2018: EUR 5,130 per                         security contribution amounts to 26.15%.
                                                             month, EUR 10,260 per year for special                      This insurance covers health insurance,
 Concerning capital gains, a 27.5% tax                       payments.) Based on the maximum                             pension insurance and accident
 rate is applied to all capital income from                  contribution base the social security                       insurance. For the first 3 years lower
 both Austrian and foreign sources.                          contribution amounts to 39.60% (18.12%                      contributions can be paid.
                                                             employee and 21.48% employer).
In Austria a statutory compulsory social                     Additionally employers are obliged                           Minimum wages depend on the sector’s
security system is in use. All employees                     to pay various other payroll-related                         collective agreement. Therefore, no
are subject to this system. The two most                     costs such as a contribution of 1.53%                        standard minimum wage exists.
important schemes are the Austrian                           to the employee pension provision
General Social Insurance Act (“ASVG”),                       fund (“BVK”), a contribution of 3,9%
which is used for dependent employees                        to the family allowance fund (“DB”), a
(blue and white-collar workers) and the                      surcharge of approx. 0.40% to contribute
Austrian Commercial Social Insurance                         to the family allowance fund (“DZ”), and
Act (“GSVG”) which is used for the self-                     a municipal tax of 3%.
employed.

                                                                           Average wage in private
  WAGE RELATED TAXES IN AUSTRIA                Minimum wage
                                                                                   sector

                                               in EUR                         in EUR

                                              1 806,7*                       3 498**

  TOTAL WAGE COST                                2 746      130,27%            5 316          130,27%               Contact:
  Employer's SS and other contri-
                                                   638        30,27%           1 235            30,27%
                                                                                                                    Günther MAYRLEITNER
  butions***
                                                                                                                    Partner - Tax Advisor - CPA
  GROSS SALARY****                               2 108      100,00%            4 081          100,00%               Phone: +43 (0) 1 367 16 67 13
  Personal income tax                               41         1,95%             629            15,41%              Mobile: +43 (0) 676 8495966 13
  Employees' contributions                         379        17,98%             734            17,98%
                                                                                                                    E-mail: guenther.mayrleitner@mazars.at
  NET SALARY                                     1 688        80,07%           2 719            66,62%

* Payroll accountant in Austria, 2nd professional year
** Average monthly salary of full time employed persons in Austria in 2016.
*** In addition to SSC contribution to family equalization fund, surcharge, severance pay and community tax is also payable
**** Monthly gross salary (12 months)
MAZARS CENTRAL AND EASTERN EUROPEAN TAX GUIDE 2018
10         TA X G U I D E 2 018

BOSNIA AND HERZEGOVINA
CORPORATE TAXES
AND OTHER DIRECT TAXES
It is important to note that Bosnia and                        Dividends profit is not included in the                  obligation to pay withholding tax.
Herzegovina (BiH) is divided into three                        calculation of the tax base. In the FBiH,                The group taxation concept is allowed in
tax jurisdictions: the Federation of BiH                       taxpayers who make investments from                      BiH for a group of resident companies
(FBiH), the Republika Srpska (RS) and                          its own resources in production equip-                   with a minimum of 90% (FBiH). Moreover,
Brčko District (BD). For the sake of sim-                      ment worth more than 50% of the profit                   mother company and its subsidiaries
plicity we will focus on the RS and FBiH.                      of the current tax period, reduces liabili-              constitute a group of companies if among
The CIT rate is flat and amounts to 10%.                       ties of corporate income tax for 30% of                  them there is direct or indirect control
A company in FBiH/RS is resident if it is                      the amount in the year of investment.                    over 50% of the shares or stakes.
registered as legal entity in the relevant                     The taxpayer who invests more than
jurisdiction, or in other case its activities                  20 million BAM (10,2 million EU) in five                 In case of acquiring real estate in the
in BiH qualify as PE (PE requirements are                      consecutive years (minimum investment                    FBiH, the transfer is taxable at cantonal
similar to those defined by OECD Model                         in first year equals to 4 million BAM (2,04              level. In the RS, there is no transfer tax,
treaty). In all tax jurisdictions, losses can                  million EUR), reduces its CIT liability for              but the owner of the real estate has to
be carried forward for up to 5 years. Loss                     50% of the investment in each of 5 years.                pay property tax up to 0,20% of the mar-
carry-back is not permitted. There are no                                                                               ket value. (decreased rules for production
special limitations in case of M&A trans-                       Withholdings rate is 10%, for dividends                 RE applies).
actions. In FBiH, interest expenses taken                       amounts to 5% in FBiH unless an DTT
from related parties are tax deductible in                      applies (currently, around 30 active
debt / equity ratio of 4: 1 (thin cap rule). In                 DTT’s). Interests, royalties and technical
RS, interest expenses are not recognized                        fees paid by a BiH company to a foreign                 VAT AND OTHER
for the amount of net interest expenses                         company are subject to withholdings at                  INDIRECT TAXES
exceeding 30% of the tax base (without                          the rate of 10%. In RS there is a flat rate
financial items). In the RS, R&D costs are                      withholding tax (10%) on all payments to
                                                                                                                        The general rate is 17%. There are
recognized in line with IAS. In FBiH and                        foreign legal person in which there is an
                                                                                                                        no reduced rates beside the 0% rate
BD, R&D costs are recognized.
                                                                                                                        (mainly for the export of goods).
                                                                                                                        VAT-exempt services are mainly
                                                                                                                        banking services, insurance, healthcare,
 TRANSFER PRICING IN BOSNIA AND HERZEGOVINA                                                                             etc. Export exemption as well as exemp-
 Arm’s length principle                                               since 1998                                        tion for deliveries to free zones apply.
 Documentation                                                                                                          Certain thresholds are as follows.
                                    It is necessary. It is prescribed the content of transfer pricing documentation.
 liability

 APA                        No                                                                                          Other indirect tax types in BiH are cus-
 Country-by-Country                                                                                                     tom duties and excise duties on goods
                                    prescribed both by FB&H Rulebook on transfer pricing as the RS since 2016
 liability                                                                                                              imported into BiH.
 Master file-local
 file (OECD BEPS 13)                                  expected to be applicable from FY 2018 on
 applicable
                                                                                                                         VAT OPTIONS IN BOSNIA         Applicable /
 Penalty
                                                                                                                         AND HERZEGOVINA                 limits
                                    RS: 10.226,00 EUR-30.678,00 EUR for legal person and 2.556,00 EUR-7.669,00
 lack of                                                                                                                 Distance selling                   No
                                      EUR for responsible person. FBIH: 1.534,00 EUR-51.130,00 EUR for legal
 documentation
                                           person and 1.278,00 EUR-5.113,00 EUR for responsible person.                  Call-off stock
 tax shortage               No              There is no interest rates defined by Governmental Rulebook                  VAT group registration             No
                                     direct or indirect control (25% for FBIH, 25% for RS) or common managing            Cash accounting                    No
                                       director or significant influence on decisions. One person is connected
                            25%        with another when that person participates directly or indirectly in the          Import VAT deferment               No
 Related parties
                          (25%) <     management, control or capital of that other person or where the same
                                         person or the same persons participate directly or indirectly in the            Local reverse charge               Yes
                                                   management, control or capital of both persons.                       Option for taxation
                                    In FB&H, safe harbour rate for support services is 5%. Support services include:     letting of real estate             No
 Safe harbours              Yes     IT maintenance services, accounting and auditing, administration, legal services,
                                     HR menagement, employees training and education and tax advisory services.          supply of used real estate         No

 Level of attention         We believe that the attention of the tax authorities will be increasing, given the new       VAT registration threshold      approx.
 paid by Tax Authority      provisions of the Act and Regulations relating to transactions with related parties.                                      EUR 25,510/year
TA X G U I D E 2 018      11

                               THE CROATIAN OFFICE
                               IS RESPONSIBLE FOR EX
                               YUGOSLAVIAN COUNTRIES
                               Mazars Cinotti Consulting d.o.o.
                               10000 – Zagreb,
         MAZARS                Strojarska cesta 20, Croatia
   IN BOSNIA AND               Phone: (00385) 1 4864 420
    HERZEGOVINA                Fax: (00385) 1 4864 429
                               www.mazars.hr

PERSONAL INCOME TAX / SOCIAL SECURITY SYSTEM
Personal income is taxed at a flat rate of         In the RS, the employee contributes 33%     In FBiH, the lowest hourly wage cannot
10%, and it is applicable on the active (e.g.      of the gross salary. In the FBiH, the em-   be less than 1,75 BAM (0,895 EUR) net,
employment, assignment fee) and pas-               ployer contributes 10.5%, and employee      or 2,96 BAM gross (1,51 EUR). In RS,
sive income (interest, real estate rental,         contributes 31% of the gross salary.        the lowest salary is determined as a net
etc.). Dividends are not taxable in BiH.                                                       amount in the amount of 395,00 BAM
                                                                                               (201,96 EUR).

                                                                 Average wage in the
 2018 IN FBIH AND RS                     Average wage in FBiH
                                                                         RS
 Exchange rate BAM/ EUR           1,96   in EUR         in BAM   in EUR       in BAM
                                           679           1 331      683         1 338
 TOTAL WAGE COST                           750        110,50%       683      100,00%
 Employer's SS and other contributions      71          10,50%         -       0,00%
 GROSS SALARY                              679        100,00%       683      100,00%
 Employees' contributions                  211          31,00%      225       33,00%
 Personal income tax*                       32           4,65%        36       5,21%
 NET SALARY                                437         64,35%       422       62,97%

                                                                 Average wage in the
 2018 IN FBIH AND RS                     Average wage in FBiH
                                                                         RS
 Exchange rate BAM/ EUR           1,96   in EUR         in BAM   in EUR       in BAM
                                           267             524      202        394,94
                                                                                               Contact:
 TOTAL WAGE COST                           295        110,50%       318      100,00%
                                                                                               Kristijan CINOTTI
 Employer's SS and other contributions      28          10,50%         -       0,00%
                                                                                               Partner – Tax & FAS services
 GROSS SALARY                              267        100,00%       318      100,00%           Phone: (00385) 1 4864 420
 Employees' contributions                   83          31,00%      105       33,00%           Mobile: (00385) 99 4877 112
 Personal income tax*                         3          1,17%        11       3,49%           E-mail: kristijan.cinotti@mazars.hr
 NET SALARY                                181         67,59%       202       66,07%
* Tax base differs from the gross salary, deductions apply.
12         TA X G U I D E 2 018

BULGARIA
CORPORATE TAXES
AND OTHER DIRECT TAXES
Bulgaria has a flat corporate income                             It applies for entities, which fulfill specific                 • tax on the acquisition of property for a
tax rate of 10% applied on the annual                            conditions. The tax rate is 10% and it                           consideration – applies for real estates,
tax profit. The tax profit may be also                           is applied to the calculated base for all                        vehicles and limited real estate rights,
deducted by tax losses to be carried                             ships - the ship’s net tonnage, by law                           acquired for a consideration. The tax
forward within five subsequent                                   amounts for each type of ship and the                            rate range is between 0.1 and 3% of the
financial years. Bulgaria applies thin                           days in exploitation of the ship.                                value of the property, or of the value of
capitalization rules to interest expenses                        Local taxes are determined by each                               the more expensive property in case of
from loans provided or guaranteed by                             municipality in ranges, stated in Local                          exchange;
related parties.                                                 taxes and fees Law. Local taxes and fees                        • inheritance tax - exempt in a limited
The financial result of collective                               include:                                                         extent (family members);
investment schemes and enterprises                                                                                               • tax on the carriage of passengers by
with special purposes are not taxable                           • real estate tax – its ratio is in the range                     taxi – fixed amount between 300 and
with corporate income tax.                                       between 0.1 and 4.5‰. Base for taxation                         1 000 BGN for each car, used for
Advance tax payments should be made                              for non-living real estates of companies                         providing taxi services;
each month or quarter, based on the                              is the highest of book value or calculated                      • patent tax – it’s applied for micro entities
estimated tax profit for the current year.                       by municipality tax valuation. Base for                          or individuals, which activities are small
Withholding tax rates are 5 % for                                taxation of all living real estates is the                       services like tailoring, very small stores,
dividends and 10 % for interests,                                municipality’s tax valuation;                                    carpentry, etc. There are fixed amounts,
royalties and other (Double tax treaties                        • transportation vehicle tax – determined                         determined by each municipality;
between Bulgaria and other countries                             as exact amount, depending on vehicle                           • garbage fee – fee collected from
could also be applied in order the                               type, and power;                                                 municipalities for maintaining of waste
withholding tax rate to be decreased).                          • tourist tax – applicable for each                               disposal, and cleaning the public areas
There is no withholding tax if the                               overnight in place of accommodation.                             (parks, streets, sidewalks, etc.);
dividends, interests and royalties are                          The range of tax is between 0.20 and 3                           • wide range of other fees, usually
paid in favor of EU member state parent                          BGN for overnight;                                               imposed for specific services, like social
company.                                                        • gift tax – applied for gifts of all kind, with                  services, technical and other services,
Social, representative expenses and the                          very limited exemptions. Applies also for                        rent of plots for sale at market places,
expenses for vehicles are also taxable                           forgiven payables. There are the two rate                        sidewalks, etc.
with 10 % tax rate.                                              ranges applicable – between 0.4 and
There is also tax for operating of ships.                        0.8 % for gifts between brothers and
                                                                 sisters and their children; and between
                                                                 3.3 and 6.6 % for all remaining;

 TRANSFER PRICING IN BULGARIA                                                      VAT OPTIONS IN BULGARIA
 Arm’s length principle                               since 1989                   Distance selling                                           approx. EUR 35,790/year

 Documentation                                                                     Call-off stock                                                            No
                                        No
 liability                                                                         VAT group registration
 APA                                    No                                         Cash accounting*                                         500,000 EUR/last 12 months
 Penalty
                                                                                   Import VAT deferment                                                      No
 lack of documentation                  No
                                                                                                                                 all types of waste (construction, household,
                                                                                                                              production, hazardous); services related to waste
 tax shortage                           No      late payment interest              Local reverse charge
                                                                                                                            processing; different types of agricultural production
                                                                                                                                               (seeds and grain)
                                               direct or indirect control
 Related parties                       50% <                                       Option for taxation
                                                 or personally related
 Safe harbours                          No                                         Letting of real estate

 Level of attention paid by Tax Authority                                          Supply of used real estate**

                                                                        5/10       VAT registration threshold                           approx. EUR 25,565/last 12 months

                                                                                 * If specific conditions are fulfilled and after permitment from tax authorities
                                                                                 ** 5 years time test
TA X G U I D E 2 018      13

                                        2 Tsar Osvoboditel Boulevard,
                                        BNP Paribas Office Building,
                                        1000 Sofia- Bulgaria
           MAZARS                       Mobile: +359879435999
       IN BULGARIA                      www.mazars.com

VAT AND OTHER
INDIRECT TAXES

For year 2018, the standard VAT rate
is 20%, while the reduced rate is 9%
(applicable for accommodation,
provided by hotels and similar places
for accommodation, including holiday
accommodation and renting of places
for caravans and camping). VAT-
exempt services include financial and
insurance services, the transfer of
buildings and some land plots, and
rights related to them, rent of real
                                                       PERSONAL INCOME TAX /                        There is minimal basis for social and
estate to individuals for housing, post                SOCIAL SECURITY SYSTEM                       health contributions for each position
services and post stamps, education                                                                 (mostly divided by sectors of economy).
services, gambling, supplies, related                  Personal income tax is applied at a flat     The maximum assessment base
to culture, religion, medical and social               rate of 10% on most of the incomes.          for social and health insurance
care services and, also supplies, for                  Income from employment and self-             contributions is BGN 2 600 BGN
which no tax credit has been used.                     employment is subject to social security     (app. EUR 1 329).
VAT payers are obliged to submit VAT                   and health insurance contributions. In       Tax rate for dividends or liquidation
returns, sales and purchase registers,                 case of employment, the employee’s           shares paid in favor of natural person
VIES and Intrastat declarations on                     contribution amounts to 13.78%               is 5 %.
monthly basis.                                         (10.58% social security and 3.2%             Tax rate applicable to the gross amount
                                                       health insurance). For the employer,         of interests, received from bank
Other indirect taxes include excise                    the contributions are 18.92% (14.12%         accounts, is 8 %.
duties (on mineral oils, spirits, beer,                and 4.8% respectively). For specific         Tax rate for amounts received after
wine, tobacco and tobacco products,                    positions there are different rates for      expiry of Life insurance, if its duration
gas, electricity and solid fuels).                     contributions.                               was more than 15 years, is 7 %

                                                                        Average wage in private
 WAGE RELATED TAXES IN BULGARIA                   Minimum wage
                                                                                sector
 Exchange rate BGN/EUR            1,95583     in EUR         in BGN        in EUR        in BGN
                                                261               510         541           1059
 TOTAL WAGE COST                                310              119%         641          118%
 Social security contribution - employer         36          13,72%            74        13,72%
                                                                                                   Contact:
 Health insurance - employer                     13          4,80%             26         4,80%
                                                                                                   Milena Mladenova
 GROSS SALARY                                   261              100%         541          100%    Head of Audit Services
 Employees' contribution                         36          13,78%            75        13,78%    Mobile: +359879435999
 Calculated personal income tax after
                                                 23          10,00%            47        10,00%    E-mail: milena.mladenova@mazars.bg
 employees' contributions

 NET SALARY		                                   202              77%          419           77%
14         TA X G U I D E 2 018

CROATIA
                                                                        A withholding tax of 15% is applied
CORPORATE TAXES                                                         on interest, royalty and business                             VAT AND OTHER
AND OTHER DIRECT TAXES                                                  consultancy services paid by a Cro-                           INDIRECT TAXES
                                                                        atian company to a foreign company.
                                                                        Exceptionally, WHT on dividends and
From 2017 onwards, CIT rates are                                        profit shares are taxed at the rate of                        The tax rate is 25%; a reduced rate of
18% or 12% for enterprises with                                         12%. However, Croatia has more than                           13% applies to tourist accommodation
annual revenues below HRK 3 million                                     60 active DTT treaties used to avoid                          services, newspapers, specific input
for taxable periods which ends after                                    withholding tax. A withholding tax of                         for agricultural production, delivery
1.1.2017. The tax base is accounting                                    20% is applied on all payments to off-                        of electrical energy, etc., while a
profit modified by several increasing                                   shore companies for the services not                          reduced rate of 5% applies on milk,
and decreasing items. Enterprises                                       mentioned in Law. The EU Directives                           books, etc. VAT-exempt services are
with annual revenues below HRK 3                                        on withholding tax apply.                                     mainly banking services, insurance,
million have the option of determining                                                                                                investment-related services, educa-
the profit tax base by cash flow prin-                                  Real estate transfer tax (RETT) is                            tional services (under certain condi-
ciple. Losses can be carried forward                                    applied on the transfer of immovable                          tions), games of luck, certain services
within 5 years but special limitations                                  property at the rate of 4%. The taxable                       provided by medical doctors and
are applicable in case of M&A transac-                                  base is the market value of a real                            dentists, and certain other activities
tions. Capital gains are included in the                                estate at the moment when the tax                             which are tax exempt with regard to
annual corporate profits tax return.                                    liability is incurred and the taxable                         their public interest or their special
Croatia uses thin capitalization (4:1),                                 person is the buyer. The acquisition                          character. Tax is deductible on food
but thin capitalization does not apply if                               of newly built real estate that is taxed                      donation to non-profit humanitarian
shareholders are financial institutions,                                according to the VAT Law is not con-                          legal entities up to 2 percent of total
CIT payers in Croatia or PIT payers in                                  sidered the transfer of real estate.                          revenues of previous year. From 2018,
Croatia. There is a range of tax allow-                                 Other taxes include contribution to the                       taxpayers are entitled to deduct 50 %
ances for new investments and R&D                                       Croatian Commercial Chamber (fixed                            of the input VAT related to the acqui-
(up to 150% of qualified costs), the                                    monthly fee), forestry tax (annual                            sition and rental of personal cars and
education of employees, etc.                                            percentage) and tourist tax (for certain                      other means of personal transport
                                                                        activities).                                                  including the acquisition of any goods
                                                                                                                                      or services related to those goods (but
                                                                                                                                      only to purchase value of HRK 400.000
 TRANSFER PRICING IN CROATIA                                                                                                          per single means of transport).
 Arm’s length principle                                          since 2004
                                                Deliver to Tax Administration upon request.                                           Other indirect tax types in Croatia are
 Documentation
                                 Yes
                                             Together with tax return for 2017, taxpayers have                                        excise duty and insurance tax.
 liability                                    to deliver Report on business transactions with
                                            related parties ( PD-IPO form) (deadline is 30 April)
                                                 APA is available as from January 1, 2017.
 APA                             Yes
                                                   The application fee will be charged.
 Country-by-Country
                                                                                                       VAT OPTIONS IN CROATIA                            Applicable / limits
                                                               from FY 2017
 liability                                                                                             Distance selling                                     EUR 36,000/year
 Master file-local file                         The tax authorities have not yet issued any            Call-off stock
 (OECD BEPS 13)                  No         guidance on the implementation of the Master File,
 applicable                                     but is expected and recognised in practice             VAT group registration                                       No

 Penalty                                                                                               Cash accounting                                     EUR 400,000/year

                                                Not specifically stated, general rules apply           Import VAT deferment                              Only in specific cases
 lack of
                                 No         (up to HRK 200,000 for a company and HRK 20,000            Local reverse charge                 construction work, the supply of used ma-
 documentation
                                                      for the responsible individual                                                         terial, the transfer of allowances to emit
                                                                                                                                            greenhouse gase, the supply of immovable
                                                     Additional tax charged and 100%
 tax shortage                    Yes                                                                                                               property in certain conditions
                                                       of that tax is not deductible
                                                                                                       Option for taxation
                                 50%        direct or indirect control (25% is commonly used by
 Related parties                                                                                                                                                    No
                               (25%) <      tax authority and advisors) or joint control functions     letting of real estate
                                            Interest on IC loans is determined by the Minister         supply of used real estate
 Safe harbours                               of Finance, for 2017 4,97% and for 2018 interest
                                                                                                       VAT registration threshold*                          EUR 39,000/year
                                                               rate is 4,55%
 Level of attention paid by Tax Authority
                                                                              7/10                   * Lorem ipsum Ut acculpa aut et molorep udanimus, serit, sinverum et aut iderias
                                                                                                      perspicium adipis et quam eaquatum idita.
TA X G U I D E 2 018   15

                                     Mazars Cinotti Consulting d.o.o.
                                     Strojarska cesta 20, II. Floor,
                                     10 000 – Zagreb, Croatia
                                     Phone: (+385) 1 4864 420
           MAZARS                    Fax: (+385) 1 4864 429
        IN CROATIA                   www.mazars.hr

PERSONAL INCOME TAX / SOCIAL SECURITY SYSTEM

Personal income tax rates are 24% (monthly                              represent employer contribution.
tax base up to HRK 17,500) and 36% (above                               For the person under 30 on undetermined
HRK 17,500), while 12% rate is withheld from                            period, there is no contributions on salary
certain types of income, e.g. dividends, capital                        (17,2) for the period of 5 years. Passive
gains, lease of the real estate etc.. Active                            incomes are generally subject only to taxes.
incomes fall under the scope of the SSC sys-                            The examples below show the cost of the em-
tem: individual pension social contributions                            ployer and the employee in case of minimum
equal 20% (employee contribution) and health                            and average wage level in the private sector.
and unemployment contributions of 17.2%                                 Basic personal allowance amounts to HRK
                                                                        3,800 and surtax is determined by municipali-
                                                                        ty/city and amounts from 0% to 18%.

                                                                                Average wage in
  WAGE-RELATED TAXES IN CROATIA                              Minimum wage
                                                                                 private sector
  Exchange rate HRK/EUR 7,5                           in EUR           in HRK   in EUR     in HRK
                                                             459        3 440    1 117       8 381
  TOTAL WAGE COST                                            538      117,20%    1 310    117,20%
  Employer's contribution                                     79       17,20%     192      17,20%
  GROSS SALARY                                               459      100,00%    1 117    100,00%
  Employees' contributions                                    92       20,00%     223      20,00%
                                                                                                            Contact:
  Tax and surtax*		                                            -        0,00%      89       7,97%
                                                                                                            Kristijan CINOTTI
  NET SALARY                                                 367       80,00%     805      72,03%
                                                                                                            Partner – Advisory services
*Tax base differs from the gross salary, deductions apply.                                                  Phone: (00385) 1 4864 420
                                                                                                            Mobile: (00385) 99 4877 112
                                                                                                            E-mail: kristijan.cinotti@mazars.hr
16         TA X G U I D E 2 018

CZECH REPUBLIC
                                                                      The Czech Republic has a wide inter-                           VAT AND OTHER
CORPORATE TAXES                                                       national treaty network with more than                         INDIRECT TAXES
AND OTHER DIRECT TAXES                                                80 double tax treaties concluded. If the
                                                                      payments are realized to third countries                       For 2018, the standard VAT rate is
The Czech Republic has a flat corporate                               without a double tax treaty (or a valid                        21%, while the reduced rates are 15%
income tax rate of 19% applied on a                                   international agreement on exchange of                         (applicable, for example, on foodstuff,
general tax base. Basically, the tax base                             information on tax matters), the with-                         non-alcoholic beverage, heat, cold, public
is represented by an accounting profit                                holding tax amounts to 35%.                                    transport, accommodation and selected
or loss modified by certain increasing                                                                                               medical/sanitary goods and food-ser-
and decreasing items. The tax base may                                Road motor vehicles used in connection                         ving services) and 10 % (applicable, for
be deducted by tax losses to be carried                               with business, as well as trucks with                          example, on baby formula and children’s
forward within five subsequent taxable                                a maximum gross weight exceeding                               food, certain pharmaceuticals, certain
periods. The Czech Republic applies thin                              3.5 tonnes regardless of their use, are                        printed books, children’s picture books,
capitalization rules to loans provided by                             subject to a road tax if registered in the                     newspapers, magazines, music sheets
related parties (generally 4:1).                                      Czech Republic. A real estate tax is to be                     and food for gluten-intolerant persons).
                                                                      applied in relation to land and buildings,                     VAT-exempt services include financial
The Czech Republic provides tax exemp-                                with tax rates generally depending on                          and insurance services, the transfer of
tion for holding structures: dividends and                            the type of the property, while the final                      buildings/flats/non-residential premises
capital gains are tax exempted, provided                              amount of tax may also be influenced by                        (after 5 years following the building ap-
certain conditions are fulfilled. More-                               local ratios (as applied by local author-                      proval), rent of real estate, post services,
over, under certain specific conditions,                              ities). A real estate transfer tax is to be                    radio and TV services, education services
an exemption may also be granted to                                   applied at a rate of 4%. Inheritance tax                       and medical and social care services.
royalties or interest from credit and loans.                          and gift tax are incorporated into the
A withholding tax of 15% applies to divi-                             income tax, with the application of stan-                      VAT payers are obliged to submit VAT
dends, royalties, interest and generally to                           dard income tax rates (15% for individ-                        returns, EC Sales Lists and Control
income received in the Czech Republic, if                             uals, 19% for legal persons). Gratuitous                       Statements (evidence which reports
the conditions for tax exemptions are not                             income from inheritance is fully exempt.                       detail on the selected transactions). All
fulfilled and a relevant double tax treaty                            Gratuitous income from giving is exempt                        reports may be submitted on monthly or
states otherwise.                                                     in a limited extent (e.g. gifts within family).                quarterly basis (depends on the subject
                                                                                                                                     who submits the report). The following
                                                                                                                                     options/limits based on the EU Directive
 TRANSFER PRICING IN CZECH REPUBLIC                                                                                                  are presented within VAT legislation:

 Arm’s length principle                                  since 1993
 Documentation                              since 2006 (scope of Documentation
                                                                                        VAT OPTIONS IN CZECH REPUBLIC                                     Applicable / limits
 liability                                         is only recommended)                 Distance selling                                                approx. EUR 45,000/year
 Country-by-Country                                                                     Call-off stock
                                                       from FY 2016
 liability
                                                                                        VAT group registration*
                                             the recommended scope of the TP
                                            documentation in the Czech Republic         Cash accounting
 Master file-local file                     corresponds to the general principles       Import VAT deferment
 (OECD BEPS 13)                                included in the OECD Guidelines
 applicable                                 and the Code of Conduct on Transfer                       supply of construction works, waste, gold and intermediary service related to supply of gold,
                                            Pricing Documentation for Associated                      supply of emission permits, selected cereals and industrial crops, mobile phones, integrated
                                                                                        Local          circuits, portable devices for the automated processing of data (e.g. notebooks and tablets),
                                                    Enterprises in the EU.                         videogame consoles, real estate (when VAT payer voluntarily applies VAT on the sale which should
                                                                                        reverse       be generally VAT exempt), supply of gas, electricity to trader, provision of telecommunication
 APA                                                     since 2006                     charge       services to trader, outplacement of construction and assembly workers, supply of immovable
                                                                                                       property in forced insolvency sale, supply of goods originally provided as guarantee, supply
 Penalty                                                                                                                   of goods after assignment of reservation of ownership
 lack of                                                                                Option for taxation
                                 No
 documentation
                                                                                        letting of real estate**
                                                 20% on tax underpayment
 tax shortage                                                                           supply of used real estate***
                                                  + late payment interest
                                                  direct or indirect control            VAT registration threshold****                                  approx. EUR 39,200/year
 Related parties              25% <
                                                    or personally related
                                                                                      *    related parties, only for Czech legal entities
                                                 Low value added services:            ** only when let to VAT payer for perfoming of his economic activity
 Safe harbours                                                                        *** 5 years time test
                                                      3-7% mark-up
                                                                                      **** only for Czech based legal entities
 Level of attention paid by Tax Authority
                                                                                      Other indirect taxes include excise duties (on mineral oils, spirits, beer, wine and tobacco) and an energy
                                                                               9/10   taxes (on gas, electricity or solid fuels). A ‘contribution’ from electricity produced via solar facilities
                                                                                      applies to such electricity producers.
TA X G U I D E 2 018      17

                                          MAZARS S.R.O.
                                          INTERNATIONAL BUSINESS CENTER
                                          186 00 Prague 8, Pobřežní 620/3,
                                          Czech Republic
              MAZARS                      Phone: (+420) 224 835 730
         IN THE CZECH                     Fax: (+420) 224 835 799
             REPUBLIC                     www.mazars.cz

PERSONAL INCOME TAX / SOCIAL SECURITY SYSTEM

Personal income tax is applied at a                               part of the gross income from an em-         For the employer, these amount to 25%
flat rate of 15% on active (employment,                           ployment/tax base from self-employment       and 9% respectively. The social security
self-employment) and passive income                               exceeding 48 times the amount of the ave-    contributions are not paid on the income
(e.g. capital gains, dividends, interests).                       rage wage (for 2018 it is CZK 1,438,992).    exceeding the maximum assessment
The employees’ tax base is increased by                           Income from employment and self-em-          base (for 2018 it is CZK 1,438,992). The
health insurance/social security contri-                          ployment is subject to social security and   maximum assessment base for the
butions paid by the employer, thus the                            health insurance contributions. In case of   health insurance contributions has been
effective tax rate amounts to approxi-                            employment, the employee’s contribution      cancelled as of 2013. The example below
mately 20%. A “solidarity” increase of                            amounts to 6.5% (social security) and        shows the employer’s and the employee’s
tax at the rate of 7% is applied for the                          4.5% (health insurance).                     costs in case of minimum wage and
                                                                                                               average wage in the private sector.

 WAGE- RELATED TAXES IN CZECH                                                           Average wage in
                                                         Minimum wage
 REPUBLIC                                                                                private sector
 Exchange rate CZK/EUR                    25,265     in EUR              in CZK        in EUR       in CZK
                                                         483             12 200         1 187      29 979
 TOTAL WAGE COST ("SUPER GROSS"                          647           134,00%          1 590     134,00%
 SALARY)
 Social security contribution -
                                                         121            25,00%             297     25,00%
 employer
 Health insurance - employer                              43              9,00%            107      9,00%
 GROSS SALARY                                            483           100,00%          1 187     100,00%
 Calculated personal income tax without
                                                                                                               Contact:
 standard tax deduction*                                  97            15,00%             239     15,00%      Pavel Klein
 Personal income tax after                                                                                     Leading Partner of Tax Department
                                                          15                               157
 standard tax deduction**                                                                                      Corporate tax / VAT
 Employees' contributions                                 53            11,00%             131     11,00%      Mobile: (+420) 721 461 394
 NET SALARY                                              415            85,88%            900      75,81%      E-mail : pavel.klein@mazars.cz

* 15% tax rate is applied on "super gross" salary, the effective tax rate is approximately 20%
** Each individual is entitled to deduct a lump sum of CZK 2,070 (app. EUR 82) per month
   from his tax liability (called "standard tax deduction")
18         TA X G U I D E 2 018

ESTONIA                                                                                                                          VAT AND OTHER
                                                                                                                                 INDIRECT TAXES
CORPORATE TAXES                                                                                                                  The general rate is 20%, while the
AND OTHER DIRECT TAXES                                                                                                           reduced rate is 9% (e.g. books and
                                                                                                                                 workbooks used as learning materials,
In Estonia there is no traditional                                 tax rate of 20%. A calculation example in                     particular medicinal products,
corporate income tax, which means                                  case the net payment is 1,000 EUR: the                        particular periodic publications, certain
that retained profits enjoy deferred                               tax base is 1000 / 80% = 1,250 EUR, and                       accommodation services). Exportation
taxation, which is considered as the most                          the corporate income tax is 1,250 EUR x                       is zero-rated. VAT is not imposed on
attractive tax incentive for companies to                          20% = 250 EUR. There are no rules                             certain goods and services of social
invest in Estonia. Corporate profits are                           regarding how losses can be carried                           nature. Other VAT-exempt goods and
subject to income tax upon distribution                            forward because only distributed profits                      services include insurance services,
i.e. dividend payments, liquidation                                are subject to income tax.                                    leasing or letting of immovable
proceeds, etc.                                                                                                                   properties, the sale of immovable
In addition, certain payments, such as                             There is no withholding tax on dividends,                     properties or parts thereof before
fringe benefits, gifts, donations, costs                           interest and royalty paid by an Estonian                      their first use, securities and financial
of entertaining guests, expenses and                               company to either an Estonian or foreign                      services. The options/limits based on
payments that are not business-related                             company, provided that certain criteria                       the EU Directive are presented within
are also identified as profit distributions                        are met. Also, there is no corporate                          the VAT legislation:
for income tax purposes. Expenses                                  income tax applied in case of pass-
related to business are not taxable if they                        through dividends corresponding to                            At the end of 2014 Estonia introduced
have been incurred for the purposes of                             certain rules. Income tax is withheld from                    an additional reporting form that
deriving income from a taxable business                            rent from a commercial or residential                         companies need to submit together
or are necessary or appropriate for                                lease (20%), payments to a non-resident                       with their VAT returns for reporting all
maintaining or developing such business                            for services provided in Estonia (10%),                       transactions exceeding 1,000 EUR with
and it is clearly justified that the expenses                      and payments to a legal person located                        a single partner in a calendar month.
are business-related. Also, no income                              in a low-tax-rate territory for services                      Also, in 2014 new rules were introduced
tax is charged on business gifts, gifts                            provided to an Estonian resident (20%).                       regarding vehicle-related VAT-
and donations to specified non-profit                              Estonia has a wide international treaty                       deductions, which in general (with one
associations and costs of entertaining                             network with 63 double tax treaties.                          specific exception) restrict more than
guests not exceeding limits set by law.                            Other direct taxes include a gambling                         50% of total input-VAT deduction related
The corporate tax rate is fixed as 20/80                           tax and a land tax applicable in specific                     with vehicle costs (purchase of car, fuel,
on the net amount of the payment, which                            cases. Also, there is a social tax, which                     repair, etc.).
means that net distribution/payment is                             is described under the social security
grossed up first and then subject to a                             system below.                                                 Other indirect tax types in Estonia
                                                                                                                                 include excise duty and customs duty.

 TRANSFER PRICING IN ESTONIA                                                                           VAT OPTIONS IN ESTONIA                         Applicable / limits
 Arm’s length principle                                           since 1999                           Distance selling                                EUR 35,000/year

 Documentation                                                                                         Call-off stock                                           -
                                                                  since 2007
 liability                                                                                             VAT group registration*
 APA                                    No                            N/A                              Cash accounting                             turnover < 200,000 EUR
 Penalty
                                                                                                       Import VAT deferment
                                               Up to EUR 3,200. A criminal penalty may also be
 lack of documentation                                                                                 Local reverse charge               specific real estate, metal waste, gold
                                                       imposed up to EUR 16 million.
                                                                                                       Option for taxation
 tax shortage                                  Daily interest of 0.06% on the tax underpayment
                                                                                                        letting of real estate
                                               share capital or voting rights; other special rules      supply of used real estate
 Related parties                       25% <
                                                 relating mutual business interest or control
                                                                                                       VAT registration threshold**                    EUR 16,000/year
 Safe harbours                          No
 Level of attention paid by Tax Authority                                                            * There must be an element of common control over the members of the group.
                                                                          8/10                       ** If the trade is below the registration threshold, voluntary VAT registration might
                                                                                                      be possible.
TA X G U I D E 2 018     19

                                          MAZARS OFFICIAL
                                          CORRESPONDENT
                                          IN ESTONIA
                                          Baltic Business Advisory OÜ
                                          Rotermanni 8, Tallinn, 10111
              MAZARS                      Estonia
           IN ESTONIA                     Phone: +372 534 634 22
                                          www.bba.ee

 PERSONAL INCOME TAX /
 SOCIAL SECURITY SYSTEM
In Estonia there is a flat rate of PIT,                          exemption decreases according to the                contributions equal altogether
which is 20%, and it is generally                                following formula: 6000 – 6000 ÷ 10 800             1.6%-3.6% depending of the type
applicable to active (e.g. employment,                           × (income amount – 14 400), 3) if annual            of mandatory pension subscription;
assignment fee) and passive income                               income is above 25 200 EUR, basic                   the employer’s contribution is
(e.g. capital gains, dividend and                                exemption is 0.                                     altogether 33.8% (social tax 33%
interest). Resident individuals can use                                                                              and unemployment insurance 0.8%).
a monthly tax-free amount, which is                              In addition, there a specific list of tax           Passive incomes are in general not
maximum 500 EUR per month starting                               deductions, which can be applied via                subject to SSC. Benefits in kind are
from 2018. The monthly tax-free                                  the annual tax returns e.g. deduction               taxed only on the level of the employer
minimum is applicable only with lower                            of housing loan interests (in certain               at two rates: corporate income tax
income and the application of it goes                            limits), voluntary pension payments,                (20/80 on net amount) plus social tax
according to the following formula: 1)                           donations and training expenses, an                 33%, which is altogether approximately
annual income up to 14 400 EUR gives                             additional tax allowance in case more               60%. The examples below show the
6000 EUR as annual basic exemption,                              than one child, etc.                                cost of the employer and employee in
2) in case annual income increases                               Active incomes fall under the scope                 case of minimum wage level and the
from 14 400 EUR to 25 200 EUR, basic                             of the SSC system: individual social                average wage in the private sector.

                                                                                       Average wage in private
  WAGE TAXATION IN ESTONIA                                     Minimum wage
                                                                                               sector
                                                          in EUR                        in EUR
  TOTAL WAGE COST                                            629             133,80%      1 604         133,78%
  Employer unemployment insurance                               4              0,80%        10             0,80%
                                                                                                                        Contact:
  Social tax                                                  155             33,00%       396           33,00%
                                                                                                                        Karin NEEMSALU
  GROSS SALARY                                               470             100,00%      1 199         100,00%
                                                                                                                        Tax partner
  Personal income tax                                          54             20,00%       193           20,00%         Mobile: +372 534 634 22
  Employees' unemployment insurance                             8              1,60%        19             1,60%        E-mail: karin.neemsalu@bba.ee
  Employees' pension insurance*                                14              3,00%        36             3,00%
  Minimum monthly tax deduction (for tax residents)           180                  -       180                   -
  NET SALARY		                                               395             83,98%        951           79,32%
*The rate could be 2% or 3% depending of the age and the subscription type
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