Mazars Regional Tax Study 2013-2014

Bucharest, 25 June 2014

Analysis of data from MAZARS’ regional study 2013-2014:
Romania, in the echelon formed by countries of Central and Eastern Europe with the lowest share of direct tax and the largest VAT

Authors: René Schöb, Partner, Head of Tax Advisory Mazars Romania
Elena Geageac, Tax Manager Mazars Romania

The changes of the fiscal environment in the period 2013-2014 in Central and Eastern Europe indicate that the region has kept a slight reduction in direct taxation, while mitigating the VAT increase. According to the regional study MAZARS "Central Eastern European Tax Brochure 2014", the average corporate tax is currently around 17% and the average VAT rate remains at about 21%. Romania is still below the regional average income tax rate, while the 24% VAT rate places it among the countries of Central and Eastern Europe with the highest level of tax burden from indirect taxation. MAZARS annual study examines the tax year in the region, allowing the comparison of the main factors of fiscal competitiveness in the countries of Central and Eastern Europe.

Income tax: Decreased rates in Slovakia and Ukraine

During 2013-2014, two countries in the region decreased by one percent the income tax level: Slovakia, at 22% and Ukraine at 18%. In the European Union, apart from Slovakia, two other Member States have decided to relax direct taxation in the same period. According to the latest Eurostat report, the greatest reduction of 2 percent, was applied by the UK (from 23% to 21%), followed by Slovakia (from 23% to 22%) and Denmark (25 % to 24.5%).
 
Romania remains the country with one of the lowest tax rates (16%), both in the EU and in Central and Eastern Europe. Regionally adjusted average share of 17.2% is now almost 6 percentage points below the EU average (23.1% in 2014). Among the countries included in the Mazars study, Romania is the closest to Poland, both as level of applied rate (Poland - 19%) and as variation, the two countries having kept unchanged the tax rate in the last 5 years. There is the possibility that, on a medium term, Romania would change the details of this comparison, if the publicized transition to progressive taxation will become a reality.    
 
Beside the European Union, where the income tax varies between 10% (Bulgaria) and 38% (France), Central and Eastern Europe is characterized by small variations of the quota applied, from state to state. The lowest level, of 9%, is in Montenegro, and the greatest, of 26%, is in Greece.

VAT: regional average rate of 21%, similar to the European Union

The trend of increasing VAT, manifested since 2009 as a result of attempts to reduce national budget deficits, slowed down in the period spanning 2013-2014. During this time, two countries in the region have increased by two percent the VAT: Montenegro (19%) and Slovenia (22%), change which didn’t influence significantly the average rate of 21%, calculated for the 16 countries. The level is similar to the one in the European Union (21.5%).
 
The VAT remains a significant tax burden in Central and Eastern Europe, Romania occupying the 3rd place in terms of the level of this rate, after Hungary (27%) and Croatia (25%). The share of 24% is maintaining Romania on one of the first places in the European Union, only four states having the VAT level higher: Hungary, Croatia, Denmark (25%) and Sweden (25%). At the opposite pole are Luxembourg (15%) and Malta (18%).

Income tax in the region: the balance between flat and progressive system

The income tax in the 16 states analysed in Central and Eastern Europe has not changed in the period spanning 2013-2014. Montenegro remains the country with the lowest income tax rate in the region of 9%, while the highest rates are in Austria and Slovenia (maximum rate of 50%).
 
The flat tax system is applied in 8 of the 16 countries, while in the other 8 states is working the progressive rate system. Eurostat data indicate that neither in the European Union did intervene any changes: apart from Finland and Sweden, which have operated income tax increases, no other Member State has changed the tax rates range in the time spanning 2013-2014.
 
Comparing the fluctuation of the income tax rates from the region with the ones in the European Union, there can be seen similarly large differences between countries. In the European Union, the lowest rate is that of Bulgaria (10%) and the highest, over 55%, are applied in Sweden and Denmark. With 16% Romania encounters itself in the echelon of EU countries with the lowest income tax rates, along with Bulgaria, Lithuania and Hungary. The analysis of percentages and differences between countries must take into account several aspects: the existence of progressive tax rate system in some countries, the criteria for granting tax deductions, the differences in the definition of the tax base, etc.

 Income tax rates for individuals in Central and Eastern Europe - 2014

Country

Type of tax

Share

Montenegro

flat share

9%

Bosnia & Herzegovina

flat share

10%

Bulgaria

flat share

10%

Macedonia

flat share

10%

Russia

flat share

13%*/ 30%**

Czech Republic

flat share

15%

Hungary

flat share

16%

Romania

flat share

16%

Austria

progressive

0% - 50%

Serbia

progressive

10% / 15% / 20%

Croatia

progressive

12% / 25% / 40%

Ukraine

progressive

15% / 17%

Slovenia

progressive

16% / 27% / 41% / 50%

Poland

progressive

18% / 32%

Slovakia

progressive

19% / 25%

Greece

progressive

22% / 32% / 42%

* for residents
 ** non-residents

Tax rates in Central and Eastern Europe - 2014

Country

VAT (standard / low)

Profit tax

Income Tax

Social contributions -total (employer)

Austria

20% / 10%

25%

0% - 50%

21,83%

Bosnia & Herzegovina

17%

10%

10%

10,5%* / No**

Bulgaria

20%

10%

10%

17,9 %

Croatia

25% / 13% / 5%

20%

12% 25% / 40%

15,2%

Czech Republic

21% / 15%

19%

15%

34%

Greece

23% / 13% / 6.5%

26%

22% / 32% / 42%

27,46%

Hungary

27% / 18% / 5%

10%/19%

16%

27%

Macedonia

18% / 5%

10%

10%

No

Montenegro

19% / 7% 

9%

9%

9,8%

Poland

23% / 8% / 5% / 0%

19%

18% / 32%

21%

Romania

24%/9%/5%

16%

16%

28%

Russia

18%/10%/0%

20%

13%*/ 30%**

30% / 10%

Serbia

20% / 10%

15%

10% / 15% / 20%

17,9%

Slovakia

20%/10%

22%

19%/25%

35,2%

Slovenia

22% / 9.5%

17% / 15%

16% / 27% / 41% / 50%

16,1 %

Ukraine

20%/7%/0%

18% / 0%

15% / 17%

36,76% - 49,70%

* residents

** non-residents