A recent study conducted by consulting firm Mazars reveals that although the Czech Republic has the highest general rate of corporation tax among the Visegrad Four (V4) countries, it does not necessarily mean that Czech firms bear the highest tax burden. The study, titled “CEE Tax Guide,” compares tax trends in 25 European and Central Asian countries, taking into account various features of the tax systems. While the Czech Republic currently imposes a 19% general rate of corporation tax, Hungary has the lowest rate at 9%. However, Hungary’s overall tax burden on profits in certain sectors can be as high as 50%. In Slovakia, the corporate income tax rate of 15% applies only to taxpayers with income below EUR 49,790, beyond which it increases to 21%.
Mazars emphasizes that different countries in the region prioritize different factors of corporate profit for tax purposes, making the overall tax landscape complex. Some countries, such as Poland and Slovakia, offer favorable tax rates for companies with smaller profits. In Hungary, despite the low general corporate tax rate, the total taxation on companies in specific sectors can reach up to 50%.
The study also highlights the European Union’s efforts to reduce tax competition and prevent harmful tax avoidance techniques. Among the surveyed countries, only Austria witnessed a reduction in the corporate tax rate, from 25% to 24%. Additionally, all Central and Eastern European countries allow the carryforward of losses to other tax periods, typically for a time limit of 5-7 years, although some countries have shorter limits.
In terms of withholding tax, the CEE region typically applies rates of 15% or even 19-20% on dividends, royalties, or interest. However, Hungary and Latvia do not generally impose withholding tax on capital income. Many countries in the region also provide tax incentives to encourage research and development investments by companies.
The Mazars study further examines how governments in the region have attempted to consolidate state budgets amidst the energy crisis triggered by the war in Ukraine. Hungary and the Czech Republic, for instance, have introduced temporary “extraordinary taxes” on specific sectors. The Czech Republic plans to apply an extraordinary tax on the income of legal entities from 2023 to 2025, targeting companies involved in energy production and trade, banking, petroleum, and fossil fuel mining and processing. This tax will take the form of a 60% surcharge on excessive profits in these sectors.
The Mazars study provides valuable insights into the corporate tax landscape in the Czech Republic and the V4 countries, highlighting the complexities and variations in tax rates, burdens, and incentives. These findings can assist businesses and policymakers in understanding the tax environment and making informed decisions regarding investments and tax planning strategies.