Forvis Mazars' 2024 CEE Tax Guide highlights key taxation trends

Forvis Mazars Group, the international audit, tax and advisory services partnership, releases its latest CEE Tax Guide 2024, providing comprehensive insights into the tax systems of 22 European and 3 Central Asian countries. The Forvis Mazars CEE Tax Guide 2024 aims to help businesses stay up to date on tax trends, as staying informed about tax regimes is crucial to navigating the ever-changing European tax landscape. The report offers guidance to investors exploring market opportunities in these regions by analysing trends in tax burdens, wages, and inflation. This year’s issue also addresses the introduction of the global minimum tax, a pivotal change in international taxation.

Rising tax burdens and inflation challenges

Payroll tax burdens across the region range from 14% to 49%, with an average of 38%, which is 2 percentage points higher than last year and 3 percentage points above the OECD average. Inflation has been a major challenge for the past years, impacting the economies of Central and Eastern Europe (CEE) and Central Asia. Daniel H. Nagy, partner at Forvis Mazars, explains, ”In the CEE region, both minimum and average wages have risen by roughly 10%, while inflation rates hovered around 9%.”

Wage and inflation disparities between countries create differing economic outcomes. For instance, countries like Croatia, Slovenia, Bulgaria, and Poland experienced wage growth exceeding inflation, which sustained or improved the buying power. However, nations like the Czech Republic and Slovakia saw inflation-adjusted wages decline.

Governments in the region have sought to manage the inflationary pressures through various fiscal policies, including new taxes and levies. The Czech Republic and Hungary, for example, introduced windfall taxes on certain sectors to address budget deficits caused by rising energy costs due to the conflict in Ukraine. ”These measures, however, have had varying degrees of success in mitigating inflation’s impact on businesses and households across the region,” Daniel H. Nagy adds.

“I am happy to share this year’s CEE Tax Guide. It provides a good comparison of where Romania stands compared to other countries in CEE, and it addresses the challenging period ahead due to the increase in the budget deficit and the announced reforms in taxation for the coming years. Additionally, from 1 July 2024, Romania’s minimum wage has risen from RON 3,300 to RON 3,700. In April 2024, Romania’s inflation rate was 6.2%, indicating a moderate level of inflation compared to previous months.”, mentioned Edwin Warmerdam, Partner, Head of Tax, Forvis Mazars in Romania.

Introduction of the global minimum tax

The global minimum tax was implemented across various European nations, setting a new standard by requiring multinational groups with global annual revenues of at least €750 million to maintain an effective tax rate (ETR) of 15% per jurisdiction. This international framework, known as Pillar II and developed by the G20 and OECD, seeks to counter profit shifting and harmful tax competition. H. Nagy notes, ”The global minimum tax signifies a seismic shift in international taxation, necessitating robust compliance strategies for multinational corporations.”

”Introduction of the Pillar 2 legislation shows the focus of CEE tax authorities on taxation of medium and large multinational entities operating in the region. We expect this trend to materialise with more tax and transfer pricing audits in the next years.”, mentioned Liviu Gheorghiu, Tax Director, Forvis Mazars in Romania.

Across the region, the new standard is influencing strategic tax planning. Changes such as the introduction of refundable research and development (R&D) tax credits and other incentives are encouraging innovation while ensuring compliance. ”Businesses will need to carefully assess the impact of these changes on their effective tax rates and overall tax planning strategies,” emphasises H. Nagy.

Improvement of tax collection due to digitalisation

To curb tax evasion and improve compliance, many regional authorities are leveraging digital tools for streamlined tax reporting and collection. Hungary’s eVAT system simplifies VAT administration by providing taxpayers with pre-filled returns using electronic invoicing data. Poland and Romania have implemented the Standard Audit File for Tax (SAF-T) to standardise data exchange between businesses and tax authorities.

”Since 1 January 2024, Romania is also advancing its digitalisation efforts by rolling out electronic invoicing for businesses who perform B2B transactions considered to take place in Romania. The country also implemented the Standard Audit File for Tax (SAF-T) to standardise data exchange between businesses and tax authorities, and as of 1 January 2025, SAF-T will be mandatory for all taxpayers. By integrating these digital tools, together with the RO e-Transport system, Romania aims to create a seamless and efficient tax compliance environment that benefits both the government and businesses.”, mentioned Bianca Vlad, Tax Partner, Forvis Mazars in Romania.

Meanwhile, Italy’s expanded e-invoicing mandate now requires electronic invoicing for most businesses, while Slovenia’s real-time invoicing system directly connects cash registers to tax authorities, reducing VAT fraud. This pan-European push for digital transformation in tax collection underscores the commitment to leveraging technology for transparency and compliance.

Regional Competitiveness Indicators in the CEE Region

There are notable disparities in employment taxes across the CEE region. Countries like Bulgaria, Romania, Ukraine, and Hungary have flat personal income tax rates between 10% and 20%, while Austria, Germany, Slovenia, Croatia, and Slovakia favour progressive systems with the highest rates reaching up to 50%. Social security taxes and employer contributions also vary, averaging 16% of gross wages across the region. Lithuania, Kosovo, and Romania have the lowest employer contributions (5% or less), while Austria and Slovakia are among the highest (29% to 36%).

Minimum wages also show a broad spectrum. Kosovo and Moldova have minimum wages under €260, while most CEE nations, including the Czech Republic, Slovakia, Poland, and Romania, fall between €700 and €1,000. In Austria and Germany, the minimum exceeds €2,000.

Value-added tax (VAT) rates generally average around 20% across the EU, but Croatia and Hungary have high standard rates of 25% and 27%, respectively.

Corporate income tax rates range from 15% to 22%, except for Hungary, where the rate is 9%. EU measures like the Anti-Tax Avoidance Directive have changed interest limitation rules and offshore regulations. Several jurisdictions now impose withholding taxes on interest, dividends, and royalty income. IFRS-based financial statements and R&D tax incentives are common, while consolidated corporate taxation is available in several jurisdictions. ”The CEE region has significant disparities in tax policies, creating both opportunities and challenges for companies operating across borders. Understanding the regional tax landscape is crucial for businesses to navigate effectively,” Dániel H. Nagy adds.

”In terms of employment taxes, looking solely at the headline employment taxation rates for comparing the numerous countries in the CEE region tells only part of the story. Successfully navigating the intricacies of the various tax systems should involve a deeper dive and also carefully monitoring the expected developments, like the expectation for tax increases given the public deficits run by governments in the region. From experience, this is most true when estimating multi-year budgets and having the ability to plan for tax contingencies.”, mentioned Lucian Dumitru, Tax Partner, Forvis Mazars in Romania.