Mazars published the Central Eastern European Tax Brochure 2014

The study found that corporate tax rates have decreased and VAT rates have increased in the CEE region. The pre-crisis times were basically characterized by a tax competition among the countries within the region. In the past few years, however, most of the countries embarked upon establishing a tax system that helps decrease fiscal deficits while ensuring an optimal investment environment, the study finds.

In response to pressure by the EU, fiscal deficits in the EU member countries have decreased on average as compared to the 2013 period. The countries surveyed continue to follow the strategy they developed earlier with none of them having implemented structural changes to their taxation systems in 2014 while using a mixed approach to combine income and indirect taxes. 

Some EU countries, including Hungary and Romania, decided to cut income and corporate taxes while increasing indirect taxes as a way out of the crisis. Others, such as Slovakia, chose a different approach and use higher personal income tax and corporate tax rates rather than increasing indirect taxes. Of the countries, that chose to increase the rate of VAT in an effort to mitigate fiscal challenges, Croatia and Serbia increased the reduced rate, Slovenia and Montenegro increased the upper rate, but none of the 15 countries cut the VAT rates in general. Hungary has the highest VAT rate with 27%, which is far higher than the regional average at 21%. In terms of corporate taxes, Greece has the highest rate at 26%. The lowest rate is found in Montenegro at 9 %, while the regional average is 17%. Contrary to the trend of VAT increase, all changes made by the countries to their corporate tax rates in 2014 were cuts.

In Ukraine, the general corporate income tax and the VAT have been set flat for 2014 with tax bases being taxed at 18% and 20 % respectively. These rates are fixed and no further decrease in the future is envisaged (according to the Tax Code of Ukraine it was initially planned to gradually decrease the CIT and VAT tax rates – down to 16% and 17% respectively). 

In terms of FDI attractiveness and competitiveness, it is highly important to be able to compare the fully-burdened labor costs. Tax allowances in the various countries and different income levels, however, put things in a very different perspective. In Ukraine, for instance, a progressive scale of rates has been introduced for personal income taxation, while the change does not affect salary income, which is taxed at 15% and 17% rates as before. 

In response to the crisis, many countries introduced crisis taxes. Hungary seems to be a role model in this regard, with Romania and Slovakia following suit by introducing sectorial crisis taxes. Although the measure was intended to be a temporary one, it may solidly be built in the national taxation systems going forward.  The Ukrainian government, in turn, intends to reduce by 2016 the number of taxes and fees from 22 to 10 and leave only VAT, income tax, single social contribution, and excise taxes.

While a comparison of the various taxation systems helps business players draw important strategic conclusions, there are other factors that play a major role in assessing a country's net profitability and competitiveness. Measures that have an indirect impact on taxation may also strongly influence the long-term profitability of investments and investor mood. In addition to taxes and other burdens, there are several other factors that play a major role in investment decision, including the level of global market confidence. 

To read more download the Mazars CEE Tax Brochure 2014 below.