Corporate income tax in Central and Eastern Europe: overview of basic rules and legislation
Contributed by Accace
19 February, 2020
Companies, in order to be successful, must be compliant with multiple statutory requirements and the local legislation in general, but a particularly challenging area is represented by the tax system. The compulsory financial charges are not only constantly changing, forcing businesses to non-stop adjustments, but they differ from country to country, making everyday operations difficult for corporations with international presence. When it comes to keeping track of all amendments and learning more about the local legislation, comprehensive tax guidelines or expert advice can serve as a reliable source of information. However, this article provides an insight into the basic rules and legislation related to corporate income taxes in the Czech Republic, Hungary, Poland, Romania and Slovakia, for a brief overview.
General and reduced tax rates
Financial charges are inevitable when it comes to corporate income, and while most countries have similar tax rates, there are some significant exceptions. The highest general rate equals to 21% in Slovakia, followed by the Czech Republic and Poland with 19%. In Romania the general corporate income tax rate is 16% and in Hungary its only 9%, being the lowest of them all. However, reduced tax rates are applicable in specific cases. In the Czech Republic, 5% applies to basic investment funds and 0% on pension funds; in Poland small taxpayers or new companies in the first year of their business activity have a reduced rate of 9%. Taxpayers in Slovakia, with revenues below EUR 100,000 per tax period, can apply a reduced rate of 15%. In Hungary, tax credits are granted for funds related to e.g. business growth or energy efficient investments for small and medium businesses.
The tax period in Poland, Romania and Slovakia can be either the fiscal or calendar year, depending on the taxpayer. In the Czech Republic, the tax period equals the financial year and in Hungary it equals the calendar year.
Companies in the Czech Republic, Hungary, Poland, Romania and Slovakia are considered tax residents if they have a legal seat or place of effective management, established under local law.
Similarities among countries arise as well when it comes to the taxable income. The worldwide income of resident companies in the Czech Republic, Hungary, Poland, Romania and Slovakia is subject to taxation, unless stipulated otherwise by a double tax treaty. The taxable profits are specified by local accounting regulations.
Non-residents in the Czech Republic, Hungary, Poland and Slovakia pay taxes only on the income of their local activities. In Romania, they are required to pay corporate income tax in case they are conducting activities through a permanent establishment, for their taxable profits.
Exemptions and special taxes
When it comes to exceptions from taxation, slight differences can be observed in local regulations. For example, in the Czech Republic, dividends paid by a subsidiary to the parent company and income from the sale of participation in a subsidiary (even in case of a non-EU subsidiary) are all exempt from taxes. On the other hand, the Romanian tax law exempts profit investments in new and specific technological equipment from taxation, while in Slovakia dividends paid from profits between 2004 and 2016 are not subject to tax either.
Special taxes are applicable in Romania, where taxpayers dealing with gambling and nightclubs are either subject to a 5% tax rate of their revenue, or to 16% of their taxable profit, according to which value is higher. In Slovakia, banks and some regulated industries, such as the pharmaceutics, postal services or air services, are subject to an additional tax rate, while insurances are subject to a so-called insurance premium tax, with 8% rate.
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