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Tax regimes in Central and Eastern Europe

Editors: CMS Tax Connect
 
CMS Tax Connect
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Introduction
CMS is extremely proud of its tax expertise in Central and Eastern Europe, which is among the best in the region. This expertise is a key part of our offering in Europe and a vital step in becoming the best European provider of legal and tax services.
The CMS Tax Connect guide to tax regimes in Central and Eastern Europe is one of the fruits of our close cooperation within the region. Having been around for some time, the guide has now been updated and extended to offer a unique overview of the tax systems of 15 countries in an informative and concise format, as they apply on 1 January 2013 (or later).
Each country is introduced through a “Tax at a glance” section. Here, we have compiled the key tax facts that you need to know. For instance, you can quickly find out what currency is used in Bosnia and Herzegovina, or whether Croatia is a member of the OECD. The country files then deal with the primary features of the tax system in question. They provide an overview of the most important features of the system. These country files are a highly convenient, simple way of getting an idea of the basics, so that you know what to ask in a discussion of your specific business situation.
The primary value of the country files lies in the overview they give of the region. This makes them indispensable for exploring the trends and policies that characterise the tax systems in CEE. For instance, you will learn that it is unusual to have a general corporate income tax rate of over 20%, with the exception of Slovakia and Austria. This is a fact worth noting amidst the drive to reduce budget deficits, as it proves that tax competition and the “race to the bottom” is far from over. On the contrary, the region is increasing its efforts to attract foreign investors in order to boost its economies.
Also of interest is the increase in VAT rates. Only Bosnia-Herzegovina currently has a general VAT rate below 18%, with more and more countries implementing a rate in the mid-20s. Hungary even has a general VAT rate of a whopping 27%. These higher tax rates offer a never-before-seen incentive to decrease VAT leakage, turning VAT planning into a priority.
At CMS, we understand that our clients would prefer not to have to deal with each jurisdiction in the region individually. That is why all our tax personnel – who work across the region as one team – are trained in international tax matters and can coordinate projects across jurisdictions, whether they are based in Tirana, Ljubljana or Prague. In this way we can deliver the seamless service which our clients value so highly.
CMS does not operate through “hubs” or out of “virtual offices”. Our tax personnel are local experts and professionals working in offices from Moscow to Vienna, Sofia to Warsaw, and Zagreb to Kyiv. This ensures that you have access to the hands-on experience and language skills you will need in the region, in order to communicate with the tax authorities effectively and quickly resolve any tax issues that may arise.
We have enjoyed putting this guide together and hope that you will find it useful.
Tamás Fehér
E tamas.feher@cms-cmck.com
Tax at a glance in CEE
Albania
Currency: Albanian LEK (ALL)
EU Member: No
OECD Member: No
Corporate income tax rate: 10% flat rate
VAT rates: 20% (standard rate), 10% (reduced rate), zero-rate and exempt rates
Group regime: No
Exemption on dividends: Yes
Thin capitalisation regime: Yes, debt-to-equity ratio 4:1; Applicable to long-term loans obtained not only from related parties but also from other parties, excluding banks and other financing institutions.
Transfer pricing regime: Yes
Is it a major topic in your country? Not yet, however, major legislative changes are expected in 2013-2014

Austria
Currency: EUR
EU Member: Yes
OECD Member: Yes
Corporate income tax rate: 25%
VAT rates: 20% and 10%
Group regime: Yes
Exemption on dividends: Yes
Thin capitalisation regime: No
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Bosnia and Herzegovina
Currency: The Convertible Mark (BAM)
EU Member: No
OECD Member: No
Corporate income tax rate: 10%
VAT rate: 17%
Participation-exemption regime: No
Group regime: Yes – for companies within the same political entity
Exemption on dividends: Yes
Thin capitalisation regime: No
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Bulgaria
Currency: The Bulgarian Lev (BGN)
EU Member: Yes
OECD Member: No
Corporate income tax rate: 10% flat rate
VAT rates: standard rate - 20%; reduced rate – 9%
Participation-exemption regime: Yes, when dividend received by EU/EEA entity
Group regime: None
Deduction of foreign losses: Foreign losses may be offset against income from the same country. Such losses may be carried forward for five years. No carry-back
Exemption on dividends: Yes, subject to limitations.
Thin capitalisation regime: Yes, debt-to-equity ratio 4:1; Applicable to long-term loans obtained not only from related parties but also from other parties, excluding banks and other financing institutions.
Percentage holding required: None
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Croatia
Currency: The Croatian Kuna (HRK)
EU Member: Yes, since 1 July 2013
OECD Member: No
Corporate income tax rate: 20%
VAT rates: 25%, 10% and 5%
Participation-exemption regime: Yes
Group regime: No
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Czech Republic
Currency: The Czech Crown (CZK)
EU Member: Yes, since 2004
OECD Member: Yes, since 1995
Corporate income tax rate: 19%
VAT rates: basic rate 21%, reduced rate 15%
Group regime: No
Participation-exemption regime and exemption on dividends: Yes (10% holding required for at least 12 months)
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Hungary
Currency: The Hungarian Forint (HUF)
EU Member: Yes, since 2004
OECD Member: Yes, since 1996
Corporate income tax rate: 10% and 19%
VAT rates: 5%, 18% and 27%
Participation-exemption regime: Yes
Group regime: No
Exemption on dividends: Yes (irrespective of percentage holding)
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Montenegro
Currency: EUR
EU Member: No
OECD Member: No
Corporate income tax rate: 9%
VAT rates: 0%, 7% and 19%
Participation-exemption regime: Local dividends only
Group regime: Yes
Exemption on dividends: No
Thin capitalisation regime: No
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Poland
Currency: The Polish Zloty (PLN)
EU Member: Yes, since 2004
OECD Member: Yes, since 1996
CIT rate: 19%
Corporate income tax rate: 19%
VAT rates: 23%, 8%, 5% and 0%
Participation-exemption regime: Yes
Group regime: Yes, applies only to CIT. Unpopular with taxpayers due to several restrictions
Exemption on dividends: Yes. The EU or EEA beneficiary must not be exempt from tax in its country of residence and must hold not less than 10% of Polish company’s shares for at least two years (with respect to Swiss shareholders, the minimum shareholding is 25%)
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Romania
Currency: RON
EU Member: Yes, since 2007
OECD Member: No
Corporate income tax rate: 16%
VAT rates: 24%, 9% and 5%
Participation-exemption regime: No
Group regime: No
Exemption on dividends: Yes
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Russia
Currency: The Russian Ruble (RUB)
EU Member: No
OECD Member: No
Corporate income tax rate: 20%
VAT rates: 0%, 10% (medicines, food, children’s clothes), 18%
Participation-exemption regime: Yes: for dividends, 50% of share capital + one year holding; for capital gains, 5 year holding starting from 2011
Group regime: Yes (since 01/01/2012)
Thin capitalisation regime: Yes, debt-to-equity ratio: 3:1
Transfer pricing regime: Yes (new since 1/1/2012)
Is it a major topic in your country? Yes

Serbia
Currency: The Serbian Dinar (RSD)
EU Member: No
OECD Member: No (observer status)
Corporate income tax rate: 15%
VAT rates: 0%, 8% and 20%
Participation-exemption regime: No
Group regime: Yes
Exemption on dividends: Domestic dividends: yes; foreign: some tax credit rules
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Slovakia
Currency: The Euro (EUR)
EU Member: Yes, since 2004
OECD Member: Yes, since 2000
Corporate income tax rate: 23%
VAT rates: 20% and 10%
Participation-exemption regime: Yes
Group regime: No
Exemption on dividends: Yes
Thin capitalisation regime: No
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Slovenia
Currency: The Euro (EUR)
EU Member: Yes, since 2004
OECD Member: Yes, since 2010
Corporate income tax rate: 17%
VAT rates: 22% and 9.5%
Participation-exemption regime: Yes
Group regime: No
Exemption on dividends: No
Thin capitalisation regime: Yes
Transfer pricing regime: Yes
Is it a major topic in your country? Yes

Ukraine
Currency: The Ukrainian Hryvnia (UAH)
EU Member: No
OECD Member: No
Corporate income tax rate: 19% (16% effective from 1 January 2014)
VAT rates: 0%, 20% (17% effective from January 2014)
Participation-exemption regime: No
Group regime: No
Exemption on dividends: Yes, if paid from domestic sources or certain qualifying foreign sources. Exemption applies irrespective of percentage holding for dividends received from residents; holding must be at least 20% for dividends received from non-residents
Thin capitalisation regime: No (instead, there are rules similar to earnings stripping restriction)
Transfer pricing regime: Yes (limited).
Is it a major topic in your country? Not yet, however, major legislative changes are expected in 2013-2014

Albania
General introduction
There are four main categories of taxes in Albania:
  • Indirect state taxes (VAT, excise, gambling)
  • Direct state taxes (income taxes, taxes on capital, personal income taxes, customs taxes and other national taxes)
  • Local taxes (taxes on small business, taxes on immovable property, board taxes, etc.)
  • Social and health security contributions

Corporate Income Tax
Resident and non-resident companies which are registered for Albanian VAT at the National Registration Centre are also subject to corporation tax at a rate of 10%. However, foreign companies which do not create a permanent establishment (PE) in Albania and do not wish to pay Albanian corporation tax, but which have been registered for Albanian VAT, must specifically refuse to be registered for corporation tax. Still, any Albanian sourced income will be subject to Albanian withholding tax of 10%, subject to any applicable treaty.
Participation exemption
Net capital gains are regarded as taxable income. Capital gains on the sale of immovable properties are treated as business income and are consequently taxed at a rate of 10%. Dividend income is subject to the same treatment as other taxable income (10% rate), subject to participation exemption or any applicable tax treaty.

Participation exemption is available on dividend distributions made by resident companies to other resident companies or partnerships. The exemption is granted to recipients holding 50% or more of the voting rights or capital value of the company making the distribution, where both companies are resident in Albania and registered for corporation tax. There is no participation exemption on dividends received from non-resident companies.
Thin-capitalization regime
The Albanian thin capitalization rules apply where a company’s liabilities are more than four times its equity (excluding short-term loans). In such a case, the interest paid on the excess is not tax deductible. The thin capitalization restrictions do not apply to banks, insurance companies or lease finance companies. In addition, interest paid in excess of the average annual interest rate of loans, as published by the Bank of Albania, is not tax deductible.
Corporate Property Tax
In general, corporate property tax is due on agricultural land and buildings. The tax rate varies according to the size, location and age of the assets.
Foreign Tax Credit
Double taxation relief may be granted under a tax treaty. Albania allows a unilateral tax credit if all supporting documents, as required by the Ministry of Finance, are provided.
Incentives
Relief from corporate income tax may be granted for certain projects on a case-by-case basis, such as investments related to public services and infrastructure projects, as well as tourism and the oil industry
Value Added Tax (VAT)
The standard VAT rate in Albania is 20%. However, a 10% rate applies to supplies of medicine and medical care services. VAT applies to supplies of goods and services within Albanian territory and to importation of goods. Supplies of services by non-residents are subject to the reverse-charge mechanism. Exports of goods and services are exempt from VAT. A non-resident entity which supplies services for which the place of supply is considered to be Albania must appoint a VAT representative to fulfil its tax obligations in the event that VAT is due. The VAT representative must be resident in Albania.

The VAT representative is entitled to act on behalf of the taxable entity for all purposes relating to VAT, and is jointly responsible with the debtor for the performance of all VAT obligations. Registration – A person that carries out taxable supplies as part of his/her business activities is required to register for VAT purposes. The threshold for mandatory registration is annual turnover of ALL 5 million. For licensed professionals (ex. notaries, accountants, lawyers etc.) there is no threshold, they must be registered for VAT in any case. The person registered for VAT purposes is also subject to corporate income tax. Filing and payment – VAT must be paid by the 14th day of each month.
Personal Income Tax
Since 1 January 2011, resident individuals have been required to submit a general personal income tax declaration. The personal income tax rate in Albania is 10%. The basis for the determination of taxable income is gross taxable income less deductible expenses.
Gross taxable income includes the following:
  • Gross salary income and remuneration of employees, or profits for the self-employed
  • Gross dividend income arising out of partnerships or business activities
  • Gross interest income
  • Deductible expenses include:
    • Social and health contributions and voluntary pension contributions
    • Interest on loans taken out for the purpose of self-education, or education of others under the taxpayer’s care
    • Medical expenses paid for medical services provided to individuals and not covered by social security


Individuals with an annual income of ALL 800,000 or more are not entitled to deduct the expenses listed above, nor are non-residents.
Social Security & Health Contributions
The social security and health insurance contributions total 27.9% of gross salary, with the employer paying 16.7% and the employee paying 11.2% on salary between ALL 19,026 and ALL 95,130. The employer must calculate the contribution and remit it no later than the 20th day of the month following the month of calculation.
Recent changes
The government has recently adopted a resolution which envisages that individuals with a monthly income of ALL 30,000 or less will be fully exempt from personal income tax.

Under a recent amendment to the VAT law, the importation of machinery and equipment for the purpose of performing investment contracts with a value of 50,000,000 ALL, or investment contracts relating to small businesses, agricultural businesses or active processing industries, is exempt from VAT. In addition, the importation or purchase of cement and iron for use as raw materials in the construction of hydropower facilities will be exempt from VAT.
Austria
General introduction
Austria is a member state of the European Union and all EU directives have been transposed into domestic law. The finance department has introduced a modern electronic system which is user oriented and flexible, and which has shortened and simplified the procedures.
Since 1 January 2011, it has been possible to obtain binding tax rulings in relation to transfer prices, group taxation and restructurings. The new procedure is already widely used in practice.
Major taxes
  • Corporate Income Tax
    • General rate: 25%
    • Qualifying venture capital companies, investment funds and pension funds: 0%
  • VAT
    • Standard rate: 20%
    • Reduced rate: 10%
  • Personal Income Tax
    • Progressive tax rate: up to 50%
    • Capital Income: 25%
    • Capital Gains from real estate (as of 1 April 2012): 25%
  • Social Security Contributions
    • Employer’s contributions: 21.83%
    • Employee’s contributions: 18.07%
  • Derivative Instruments Gains Tax
    • Applicable to all kinds of capital income: 25%
    • Real Estate Transfer Tax: 3.5%

Corporate tax
Tax basis
Taxable income is based on annual profits, which are determined under local accounting standards and adjusted for tax purposes. For specific assets like buildings or vehicles, a maximum annual depreciation rate is fixed by law. A favourable and modern group taxation regime is available, under which domestic and foreign subsidiaries may be included in a tax group.
Tax rate
The corporate income tax rate is 25%. The corporate income tax rate for qualifying venture capital companies, investment funds and pension funds is 0%. Non-profit organisations are tax exempt.
Capital gains
Capital gains are generally subject to 25% corporate income tax unless the participation exemption applies (see below).
Participation exemption
Dividends received on Austrian and EU shareholdings are generally tax exempt. Dividends received from third countries are tax exempt if (i) Austria has concluded a treaty for administrative assistance with the relevant state or (ii) the shareholding represents at least 10% of share capital and the holding period is at least one year.
Thin capitalisation
There are no thin capitalisation rules in Austria. Interest is fully deductible.
Tax loss carry-forward
Tax losses can be carried forward for an unlimited period of time and may be offset against up to 75% of annual profit (i.e. 25% of annual profit remains taxable). Tax losses are extinguished if all three of the following criteria are met:
  • 75% change in shareholders,
  • 75% change in executive directors, and
  • change of business activity.

Tax relief
In relation to R&D expenditure, a government premium of 10% of the expenditure is paid by the state.
Withholding tax
Withholding tax applies to a number of payments, including dividends, interest and royalties. The statutory rate is 25%. The rate may be reduced under a double tax treaty or the relevant EU Directive.
Transfer pricing
The OECD Transfer Pricing Guidelines are applicable, as well as the Austrian Transfer Pricing Guidelines published by the Ministry of Finance in October 2010.
Transfer prices are generally determined by reference to the market prices charged between unrelated parties, as determined by one of the methods envisaged by the OECD Transfer Pricing Guidelines.Taxpayers must maintain appropriate transfer pricing documentation, as described in the Austrian Transfer Pricing Guidelines.
Value Added Tax
The standard rate of 20% applies to all supplies of goods and services not specified as being subject to the reduced rate or exempted.
The reduced rate of 10% applies to specific supplies of goods and services such as food, water, medicines, passenger transport, cultural and sports events, residential leases, hotel accommodation, etc.
Personal Income Tax
Income tax applies to seven categories of income: income from agriculture and forestry, income from independent work, income from trade, income from employment, income from capital, income from rental and other income.
Income from capital (dividends, interest, capital gains etc.) is taxed at a flat rate of 25%. Income tax on the other categories of income is calculated at a progressive rate of up to 50%. As of 1 April 2012, capital gains derived from the sale of real estate are generally subject to a flat rate of 25%.
Other taxes
  • Wealth Tax: There is no wealth tax in Austria.
  • Inheritance and Gift Tax: Since 1 August 2008, no inheritance and gift tax is levied in Austria.
  • Real Estate Transfer Tax: Real estate transfer tax is payable at 3.5% of the consideration paid by the purchaser. In addition, a 1.1% registration fee is levied for the registration of the new owner in the land register.

Double tax treaties
Austria has concluded double taxation treaties with more than 80 states. The double tax treaties generally follow the OECD Model Tax Convention.
Bosnia and Herzegovina
General introduction
In order to explain the tax system in Bosnia and Herzegovina (“BiH”), reference must be made to the Dayton Agreement 1995 (hereinafter the “DA”). The DA established a constitution for BiH, as well as constitutions for the entities within BiH – the Federation of BiH (“FBiH”) and Republika Srpska (“RS”). Brčko District (“BD”) was subsequently created as a third unit.
Consequently, the tax systems vary between the three units in terms of tax rates and tax benefits. Different tax authorities (at entity, cantonal and municipal levels) are responsible for collecting taxes. A centrally administered VAT regime was enacted at BiH level on 1 January 2006. The BiH Indirect Taxation Authority is responsible for collecting value added tax and customs and excise duties throughout BiH, as well as coordinating fiscal policy issues generally.
Main taxes
  • Value added tax: 17%
  • Corporate income tax: 10%
  • Personal income tax
    • 10% of gross salary in FBiH
    • 10% in RS
    • 10% in BD
  • Property tax: annual charge at various rates per square metre or based on market value
  • Real estate transfer tax: in RS, real estate transfer tax is 3% of the estimated property value. In the FBiH, cantonal laws set the tax rate by reference to the value of immovable property (5 to 8%)
  • Excise duties on some commodities, such as oil products, tobacco products, soft drinks, alcoholic drinks, beer, wine and coffee.

Corporate Income Tax
Corporate Income Tax is payable by companies and other legal entities that independently and permanently carry out economic activities for profit. Non-residents are subject to the unit (FBiH, RS or BD) tax on profits achieved in that unit. The tax base is the entity’s accounting profit, adjusted in accordance with the provisions of the Corporate Profit Tax (CPT) Law. The tax rate in all three units is 10%. A wide range of incentives is available in FBiH and BD, while the CPT Law in the RS does not offer tax incentives.
Tax loss carry forward
In general, a tax loss can be carried forward and offset by reducing the taxable base in the following five years. Tax losses incurred outside the unit of residency cannot be deducted from the tax base.
Thin capitalisation
There are no thin capitalisation rules.
Withholding tax
In FBiH, a 10% withholding tax is charged on interest, royalties, fees for market research, tax advisory or audit services, and insurance or reinsurance premiums. A 5% withholding tax is charged on dividends. In RS and BD, a 10% withholding tax is payable on interest paid to non-residents, interest paid by permanent establishments or subsidiaries on loans from their foreign associates, royalties, and fees for management, consulting, financial, technical or administrative services. In RS dividends are subject to a 10% withholding tax, but this can be reduced to 0% if the foreign shareholder holds at least 10% of the company paying the dividend. These rates can also be reduced under double tax treaties.
Transfer pricing
Transfer pricing issues are regulated by the applicable CPT Legislation for each entity. In all jurisdictions, the taxpayer has an obligation to report related party transactions in its tax statement (an additional document submitted with the tax return). The taxpayer must also report the value of related-party transactions separately, based on market prices or substantially similar transactions (i.e. at «arm’s length» prices). The CPT legislation does not explicitly regulate the form of transfer pricing documentation. However, the legislation does stipulate the transfer pricing methods that can be used to establish the market value of the goods/services.Based on current practice, in the absence of adequate transfer pricing documentation the taxpayer runs the risk of the tax authorities not recognising expenses in full, or making a deemed increase in the revenue generated by transactions with associated companies.
Tax consolidation
Tax consolidation at group level is possible upon request, provided that all the companies within the group are resident in the same unit (FBiH, RS and BD). Different detailed regulations apply in each unit.
Value Added Tax
Any person who independently carries out any economic activity at any place, whatever the purpose or result of such activity, is a taxable person for VAT purposes. VAT is payable on all supplies of goods and services made for consideration by a taxable person acting as such in BiH, and on the importation of goods. There is a single tax rate of 17%. The BiH Indirect Taxation Authority is responsible for collecting value added tax across the whole territory of BiH. A system of tax representatives is also in place. The VAT Law follows the EU VAT Directive.
Personal Income Taxation
Personal income tax applies to an individual’s income. Residents in each entity are liable to income tax on their worldwide income (i.e. income derived anywhere in BiH or abroad). Non-residents are liable to income tax on income derived within the particular entity. Personal income tax rates apply to the difference between total taxable income and expenses recognised for tax purposes. The tax base for non-residents is gross income with various exemptions/special rules. The applicable tax rates are as follows:
  • 10% (FBiH)
  • 10% (RS)
  • 10% (BD).

Social Security/National Insurance Contributions
In all entities, contributions are calculated on the basis of gross wage (net wage multiplied by a predetermined coefficient).
Employee’s contribution
  • FBiH: 17% for pension insurance, 12.5% for health insurance, 1.5% for unemployment insurance (a total of 31% of gross wage)
  • RS: 18,5% for pension insurance, 12% for health insurance, 1% for unemployment insurance, 1.5% for child protection (a total of 33% of gross wage)
  • BD: 17% or 18,5% for pension insurance for employees from both entities, 12% for health insurance and 1.5% for unemployment insurance.

Employer’s contribution
  • FBiH: 6% for pension insurance, 4% for health insurance, 0.5% for unemployment insurance (a total of 10.5% of gross wage)
  • RS: nil
  • BD: 6% of gross wage for pension insurance for employers who apply FBiH law.

Other
Real Estate Transfer Tax
In FBiH the taxpayer is the seller of the property. Cantonal laws determine the tax rate according to the value of the immovable property (5% - 8%).
Inheritance Tax
Inheritance and gift taxes are levied at cantonal level in FBiH, at rates between 2% and 10%.
Property Tax
In FBiH property tax is levied at the cantonal level. Allocation of the revenue from this tax between the cantons and municipalities is prescribed by cantonal laws. In RS property tax is administered and levied by the central government on behalf of the local communities. The taxable base is the estimated market value of the immovable property while the tax rate, depending on the local community varies between 0.05% and 0.5%. In BD the minimum and maximum tax rates vary between 0.05% and 1%. The actual tax rate is fixed annually by the Brčko parliament.
Double Tax Treaties
BiH has 29 treaties in place.
Bulgaria
Elisaveta Georgieva
E elisaveta.georgieva@cms-cmck.com
Corporate tax
Corporate taxation in general
Bulgaria levies corporate tax at a flat rate of 10%. In addition to the standard tax on corporate profits, there is also a special tonnage tax (optional regime), a gambling tax and a tax on certain expenses. Some income derived by non-resident legal entities without permanent establishments in Bulgaria is subject to a final withholding tax, which is levied on gross income. The taxable entities are primarily companies incorporated under Bulgarian law and non-resident companies (in respect of their own Bulgarian income or income derived through a Bulgarian permanent establishment).
Income from special investment schemes, trusts, pension funds and other collective investment vehicles, Bulgarian REITs, etc. are exempt from corporate income tax. However, dividends distributed by such companies are taxed at shareholder level. The tax year generally corresponds to the calendar year. Most taxpayers are required to file corporate tax returns by 31 March of the year following the respective financial year. Different reporting rules apply to companies which are subject to special taxes. Annual corporate tax is due on the same date, with advance payments made during the year being deducted from the final amount due. The amount of the advance payments is determined on the basis of the forecasted taxable profit for the current year as declared in the tax return for the previous fiscal year or as subsequently amended with a declaration. If the net sales are up to BGN 300,000 (approx. EUR 153,280) advance payments are not mandatory. Bulgaria has concluded 68 double tax treaties and around 63 investment protection treaties.
Tax on expenses
Bulgaria levies 10% annual tax on entertainment expenses, the cost of social benefits provided in-kind to employees and maintenance and running costs for vehicles.
Withholding tax
  • Dividends: Dividends distributed to Bulgarian or EU/EEA corporate shareholder are exempt from withholding tax, whilst ordinarily withholding tax of 5% of gross income applies.
  • Interest and royalties: Interest and royalties paid to qualifying EU companies are subject to 5% withholding tax provided that the payer and the recipient are related companies and certain conditions are met. The preferential rate of 5% does not apply to certain hybrid financial instruments, however. Otherwise, the tax rate is 10%, unless a more favourable double tax treaty rate applies
  • Capital gains: Gains realised by non-residents on the sale of financial assets or real property are subject to 10% withholding tax, levied on the difference between the acquisition and the sales price
  • Other income: Certain income derived by non-residents and not generated by a permanent establishment in Bulgaria, such as remuneration for technical services, remuneration under franchise and factoring agreements etc., is subject to a withholding tax of 10%, subject to any double tax treaty. EU/EEA entities may opt for net taxation of certain income under certain conditions, subject to following a specific procedure.

Transfer pricing
Bulgarian transfer pricing rules apply to dealings between related parties and in certain cases between unrelated parties. Taxpayers are not obliged by law to create and maintain transfer pricing documentation either before or at the time of the controlled transaction. Domestic transfer pricing guidelines nonetheless recommend preparing and maintaining transfer pricing documentation on an ongoing basis. Advance Pricing Agreements are not available in Bulgaria yet.
Anti-avoidance
Bulgarian tax law adopts the substance-over-form approach to combating tax avoidance. There is also a concept of “countries with preferential tax regimes”. These are countries which do not have a tax treaty with Bulgaria where the income tax applicable to Bulgarian income is over 60% lower than the corresponding Bulgarian tax. There is also a (black) list of countries with preferential tax regimes. It includes countries such as Monaco, Virgin Islands (US and UK), Aruba, San Marino, Guam, Dutch Antilles, Hong Kong, Gibraltar, etc. Certain income paid to residents of the above countries is subject to a 10% withholding tax.
Thin capitalisation
The deduction of interest paid on loans from third parties is limited to the total interest received by the company plus 75% of its profits (calculated without taking into account interest income and expenses) where the company’s debt-to-equity ratio exceeds 3:1. Interest payable to banks is only caught by these rules if the bank and the company are related parties or the loan is guaranteed by a borrower’s related entity. In general, non-deductible interest may be carried forward and deducted from the company’s profits in the following five years, subject to specific conditions and requirements.
Compensating losses
  • Domestic: Companies may carry forward losses for five consecutive years. Carrying forward is not allowed in the context of restructuring transactions, except in the case of a change of legal form and for permanent establishments in Bulgaria resulting from an EU merger.
  • Offsetting foreign losses: The ability to offset losses generated through a foreign PE depends on whether the applicable double tax treaty applies the exemption or credit method. The exemption method is more restrictive in that it will only allow the losses to be offset against the profits of that same source in that same country of establishment of the respective PE, but it allows for the remaining losses to be used by the Bulgarian entity upon termination of a PE in an EU/EEA state.

Personal Income Tax
Taxes
Individuals resident in Bulgaria are taxed at a flat rate of 10% on their worldwide income on a self-assessment basis, unless in an employment or similar relationship. There is no minimum taxable threshold. Dividends and liquidation quotas are subject to 5% tax, calculated on the gross income. There are special rules for calculating the taxable base for capital gains upon disposal of real estate and financial assets, self-employment income, revenues from leasing of movable and immovable property, etc. Non-residents receiving Bulgarian income are subject to 10% withholding tax on the income, except for dividends and liquidation quotas, which are taxed at 5% unless a more favourable tax treaty is applicable. Generally, all income paid by Bulgarian legal entities or persons is treated as Bulgarian income. EU/EEA individuals may opt for net taxation of certain income under certain conditions, subject to following a specific procedure. In addition, there is a range of tax exemptions, some of which are also available to EU/EEA citizens.
Social security
Social security contributions (including health insurance) in Bulgaria vary between 30.7% and 31.4%, depending on the age of the employee, the type of work, etc. The apportionment of these contributions as between employer and employee depends on the particular contribution.
Local taxes
  • Real estate tax: Real estate tax is levied on the tax value of the real estate for residential property and the higher of tax value and net book value for business property. The rate varies from 0.01% to 0.45% depending on the municipality.
  • Transfer tax: Transfer tax is levied on transfers of ownership of real estate and vehicles, as well as on the creation of in rem rights over real estate. The tax base is the tax value of the property or right in question. The rate varies between 0.1% and 3%, depending on the municipality. The taxable person is normally the acquirer of the property/right.
  • Gift and inheritance tax: The rate of gift and inheritance tax varies between 0.4% and 6.6% for collateral relatives and non-related persons, but there is no tax where the gift is made by, or the property inherited from, a direct relative or spouse. Proceeds from the sale of inherited property are not subject to tax.

Value Added Tax
General
The standard VAT rate is 20%. The reduced rate is 9% and applies to certain tourist services such as hotels and other places of accommodation. The VAT system is generally aligned with the EU VAT Directive.
VAT registration
Persons (both natural and legal) with taxable turnover exceeding BGN 50,000 (approximately EUR 25,000) in any 12-month period must register with the tax authorities for VAT purposes. Mandatory VAT registration also applies to intra-Community acquisitions above a certain value, and to foreign entities, not established in Bulgaria, which make taxable supplies in Bulgaria in respect of which they are required to pay VAT, or which have a fixed place of business there. Taxable persons (including foreign persons) also have the option to register for VAT voluntarily.
Exempt supplies and incentives
The list of exempt supplies replicates the list contained in EU directives. Taxable persons may treat a supply under certain leasing agreements as VAT-able. The same is true for transactions involving (parts of) “old” buildings and adjacent land, or non-regulated land, and leases of premises to an individual (not being a trader) for domestic purposes.The VAT Act enables investors to benefit from lighter importation requirements and shorter timescales for VAT refunds. In both cases the investor must meet certain requirements and must submit an application for permission to the Minister of Finance.
Excise duties
The following are subject to excise duties: alcohol and alcoholic beverages; tobacco products; energy products and electricity.
Croatia
General introduction
During the recent years, the tax system in Croatia was being aligned with EU, which resulted with its full harmonization with EU regulations as of 1 July 2013 when Croatia joined the EU. The tax collection process is divided between different official authorities according to the source of tax revenue.
Main taxes
  • VAT: 5%, 10% and 25%
  • Corporate income tax: 20%
  • Personal income tax: progressive rates: 12%, 25%, and 40%
  • Real estate transfer tax: 5%
  • Excise duties: alcohol, alcoholic beverages, tobacco, energy and electricity
  • Special taxes: non-alcoholic beverages, coffee, motor vehicles, vessels and aircraft, liability and comprehensive road vehicle insurance premiums.
  • County, municipal and town/city taxes as part of regional and local government revenue; city surtaxes on personal income tax.

Corporate Profit Tax
The entities subject to corporate profit tax are resident companies and other legal entities carrying out activities with a view of profit, as well as permanent establishments of non-resident businesses. Individual entrepreneurs may, subject to certain conditions, elect to become corporate profit taxpayers.
The corporate profit tax base is determined in accordance with the accounting regulations and adjusted for tax purposes in line with the Corporate Profit Tax Law. The general tax rate is 20%. Tax exemptions and other tax reliefs are available in accordance with special legislation regulating incentives. The Merger Directive, Interest / Royalty Directive and Parent / Subsidiary Directive have been implemented in the Corporate Profit Tax Act and are applicable from Croatia’s accession to the EU (i.e. 1 July 2013).
Special reduction of the tax base
As of 2012, the tax base may also be reduced by the amount of profit used to increase the share capital of the company. The taxpayer has to prove that share capital was actually increased. The reduction will not apply where tax avoidance or evasion is the sole purpose of the increase.
Tax loss carried forward
Generally, a tax loss can be carried forward for five years. If the right to offset losses passes to a legal successor by virtue of a merger, acquisition or division, the right to carry forward transferred losses starts in the period during which the legal successor acquired that right. The legal successor may lose the right to carry forward tax losses if the original taxpayer had not been carrying out business activities during the two tax periods before the change, or if the business activity changes significantly in the two tax periods after the change (where the change is not intended to preserve jobs or bring about a recovery of the business). The above is also applicable when there is a change of control during the tax period (affecting more than 50% of ownership).
Thin capitalisation
If the amount borrowed from shareholders holding at least 25% of the shares, equity capital or voting rights in a taxable person exceeds four times the amount of that shareholder’s share in the capital or voting rights, interest on the excess will not be tax-deductible.
Participation exemption
Dividends received are not included in the corporate tax base, regardless of whether they are received from a domestic or foreign entity.
Withholding tax
Withholding tax is generally payable at the rate of 15% on the gross amount of interest, royalties, payments in respect of other intellectual property rights and service fees paid by a resident to a non-resident, who is not a natural person. Dividends paid abroad, with the exception of dividends paid to natural persons, are subject to withholding tax at the rate of 12%. Withholding tax may be further eliminated/reduced by applying the Interest / Royalty Directive and Parent / Subsidiary Directive or the double tax treaties (where the rate may be reduced to 5 or 0%). Additionally, there is a 20% withholding tax on payments for services of any kind made to persons with a business seat or place of management in a country blacklisted by the Ministry of Finance.
Transfer pricing
The transfer pricing legislation follows the OECD Transfer Pricing Guidelines.
Transfer pricing rules apply to transactions between related resident and non-resident companies and between two resident companies where one or both companies:
  • have beneficial tax status (i.e. pay corporate profit tax at a rate lower than prescribed); or
  • have the right to carry forward tax losses from earlier tax periods.

In accordance with a special rule for interest on loans between related parties, the arm’s length interest rate is determined and published by the Finance Minister before the beginning of the tax period in which it is to apply. If the Finance Minister does not determine and publish such a rate, the base rate of the Croatian National Bank applies (currently 7%).
Value Added Tax
The VAT system in Croatia is harmonized with the EU VAT Directive. VAT rates are 25%, 10% (tourist accommodation, food preparation and serving non-alcoholic beverages, wine and beer in restaurants and bars, certain newspapers and periodicals, edible oils and fats, infant food, water (except bottled water) and sugar) and 5% (with right to deduct for bread, milk, medicine, implants, professional magazines etc.).
Foreign businesses receiving VAT taxable supplies in Croatia have the right to a VAT refund, where Croatia requires reciprocity with the business’s country of residence. The reciprocity is not required for taxpayers from EU member states.
Personal income tax and other taxes
Personal income tax
Personal income tax applies to an individual’s income. Different methods of calculating the tax base apply to different sources of income. The tax base for residents is determined on a worldwide basis, while non-resident taxpayers are only liable to pay tax on income sourced in Croatia. Tax rates are progressive: 12%, 25%, and 40%.
City surtax
Municipalities and cities may levy an additional tax, called the city surtax, which is calculated and withheld on the amount of personal income tax payable. City surtax is payable by reference to the residence or habitual abode of the taxpayer, at rates varying from 0 to 18%.
Social security contributions
Pension contributions (payable by the employer):
  • Inter-generation solidarity contribution at the rate of 20% (for employees insured according to the previous pension system); or
  • Inter-generation solidarity contribution at the rate of 15% and individual capital saving at the rate of 5%.

Health care contributions (payable by the employee):
  • Obligatory health care insurance at the rate of 13%;
  • Unemployment insurance at the rate of 1.7%; and
  • Work Accident or professional illness insurance at the rate of 0.5%.

Real Estate Transfer Tax
Real estate transfer tax is payable by the transferee at the rate of 5%. The tax base is the market value of the real estate at the time of purchase.
Czech Republic
Radko Matyáš
E matyas@ccsconsulting.cz
General introduction
The tax system in the Czech Republic is very similar to other European tax systems, having undergone years of harmonisation. The Czech system includes the following taxes: personal income tax, corporate income tax, VAT, road tax, real estate tax, real estate transfer tax, inheritance and gift tax, excise taxes and energy taxes. Health and social insurance also form part of the Czech tax system.
Main taxes and rates
  • Personal income tax: 15% plus 7% on income exceeding 1,242,432 CZK (approx. EUR 48,500)
  • Corporate income tax: 19%
  • VAT
    • 21% basic rate
    • 15% reduced rate
  • Social & Health Insurance Contributions
    • Employer’s contributions: 34% of gross salary
    • Employee’s contributions: 11% of gross salary

Corporate Income Tax
The corporate income tax rate is 19%. There is also a reduced rate of 5%, levied on investment, pension and share funds. There are currently (2013) no significant amendments planned for corporate income tax.
Tax losses
Tax losses can be carried forward for five years after the year in which they were generated. The deduction of carried-forward tax losses is limited if there is a change in the direct shareholding of the company of more than 25%. In this case, losses are only deductible if at least 80% of current revenue is generated from the same business activity as that carried out in the taxable period when the tax loss was generated. Under Czech law, tax losses cannot be offset against the profits of another company within the group.
Participation exemption and dividend exemption
The participation exemption applies to income generated from the transfer of shares in Czech and foreign (even non-EU) companies. However, certain conditions apply to the exemption: the parent company must hold at least 10% of the shares for more than 12 months; in the case of a company tax-resident in a non-EU country (i.e. where the parent company is a tax resident in the Czech Republic and the subsidiary is a non-EU resident), that country must also have signed a double taxation treaty with the Czech Republic, and its corporate income tax rate must not be lower than 12%. The exemption does not apply to shares acquired as part of the purchase of a business or part thereof. The conditions for tax exemption of dividends are analogous to the conditions for the participation exemption.
Research and development expenses
A taxpayer may deduct from the tax base 100% of the expenses incurred, during the relevant taxable period, in carrying out research and development projects. These may relate to experiments or theoretical work, proposed technologies etc. This means that such expenses will be deductible twice – once as expenses incurred to generate income, and secondly as items deductible from the tax base.
Investment incentives
Manufacturing companies may be granted a partial or complete income tax allowance for a period of up to 10 years, together with support for the creation of new jobs and employee re-training. Investment projects in the Czech Republic may be financed from three main public sources – local investment incentives, EU structural funds and EU central funds.
Withholding tax
Among others, income from dividends, interest and royalties is subject to domestic withholding tax. The withholding tax rate is 15%. A 5% rate applies to finance leasing fees. Where the income is paid to a non-resident, the rate of withholding tax is usually reduced by a double taxation treaty or under the relevant EU Directives. A 35% rate applies to income paid to non-residents from countries without a double taxation treaty with the Czech Republic.
Transfer pricing
In the Czech Republic, all transactions with associated enterprises must be carried out in accordance with the arm’s length principle. Preparing transfer pricing documentation is not obligatory under Czech law; taxpayers may prepare such documentation in accordance with the OECD Transfer Pricing Guidelines or the EU Transfer Pricing Documentation approach, or they may present other evidence and documents. It is the taxpayers’ decision as to how they prove and justify the prices between associated enterprises. Taxpayers may also ask the tax authorities for a binding ruling regarding transfer prices.
Thin capitalisation rules
The thin capitalisation rules concern loans and credit granted by related persons, and apply not only to interest but to all finance costs relating to the loan or credit. The debt-to-equity ratio which is expected to be maintained is 4:1. Finance costs exceeding this ratio are generally non-deductible. Moreover, finance costs exceeding this ratio and paid to a tax resident in a non-EEA country are recharacterised as dividends. Such dividends are subject to the standard 15% rate of withholding tax, unless the relevant double taxation treaty provides otherwise.
Value Added Tax
Czech VAT law is harmonised with the EU VAT Directive. For 2013, the standard rate is 21% and the reduced rate is 15%.
The majority of goods and services are subject to the standard rate. The reduced rate applies to food, medicines, printed matter, public transportation, water and distribution, cultural activities, accommodation, and construction works. In 2012, a reverse charge system was introduced for construction and assembly services in an effort to prevent tax evasion.
Personal income tax
The tax base for an individual includes all income generated by any activity. The Income Taxes Act recognises five sources of income: employment, entrepreneurial activity, capital, leased property and other income. The personal income tax rate is 15%. Tax on employment income is calculated on the basis of “super-gross” income. This represents gross income increased by an amount corresponding to the social security and health insurance contributions paid by the employer (34% of gross income).
Deductions are available against income from entrepreneurial activities and property leasing, either in the amount of actual expenses or as a fixed percentage of income (30% - 80%). From 2015, the super-gross basis of assessment is planned to be abolished and the personal income tax rate is to be increased to 19%.
Rates of social security contributions
  • Health Insurance
    • Employee: 4.5%
    • Employer: 9%
    • Sole trader (contributions calculated on 50% of tax base): 13.5%
  • Social Insurance
    • Employee: 6.5%
    • Employer: 25%
    • Sole trader (contributions calculated on 50% of tax base): 31.5%

The social insurance contributions cover sickness insurance, pension insurance and state employment policy contributions. There are caps applicable to the assessment base of employer’s and employee’s contributions for social security insurance (48 times the average monthly wage, or 1,242,432 CZK (approx. EUR 48,500)). Contributions are not payable on the excess. Health insurance has no caps.
Other tax news
As of the end of 2012, the Czech Republic has signed 80 double taxation treaties. During 2012, for instance, it renewed its treaties with Poland and Croatia.
Hungary
General introduction
Hungary is characterised by a very high number of taxes, many of them special taxes which only affect certain targeted industries, such as the banking, energy, telecoms, pharmaceutical and retail sectors. As some of these taxes were introduced retroactively, and many of them are very controversial, Hungary’s tax system has a reputation of being unpredictable. At the same time, entities that fall into neither of the “targeted” categories enjoy a very generous tax system with many tax planning and tax reduction opportunities. Below is an overview of the main Hungarian taxes and their rates.
Major taxes
  • Personal income tax: 16%
  • Corporate income tax: 10% / 19%
  • VAT
    • 27% general rate
    • 5 and 18% reduced rates
  • Local business tax and innovation contribution: 2% + 0.3% on gross income
  • Social and other payroll taxes and contributions on salary
    • Employer’s contributions: 28.5 % of gross salary
    • Employee’s contributions: 18.5 % of gross salary
  • Healthcare contribution on non-salaried income: 10%, 14% (partially capped) or 27%

Corporate tax
General system
Hungary has a progressive corporate income tax system. Yearly profits below HUF 500 million (approx. EUR 1.6 million) are subject to a 10% tax rate, whilst the excess is taxed at 19%. Some income is taxed at a flat 19% rate, however. The tax base is calculated on the basis of accounting profits and then adjusted by increasing and decreasing items. As a general rule, expenses not incurred in relation to the business activities may not be deducted.
Withholding tax
Any payments (including dividends, interest, royalties, service fees, etc.) made to foreign, non-individual taxpayers are free of withholding taxes, even if they are paid to low-tax or non-treaty jurisdictions. This, coupled with a wide-ranging tax exemption on dividends, makes Hungary a good location for holding companies.
Tax loss carry forward
Tax losses accumulated in a tax year may generally be carried forward indefinitely. However, losses from previous years may not be used to reduce profits by more than 50% in any one year. There are also strict conditions on the use of losses predating a transformation or change of control. The main conditions are that the company remains within the same corporate group and/or that it actually pursues and derives turnover from its earlier activities, or those of its predecessor.
Participation exemption
Dividends received are always free from corporate income tax, unless the payer is a controlled foreign company. Capital gains on the sale of participations are tax exempt if initially, at least 30% is acquired, a notification is made to the tax authority upon its acquisition and it is held for at least one year. Opting for the participation exemption regime means that any potential capital losses will not be tax deductible. It is also possible for foreign companies to relocate their place of effective management (tax residency) to Hungary, and take advantage of this exemption subject to the same conditions. This applies even with regard to participations purchased prior to the relocation.
Transfer pricing
Hungarian taxpayers have three primary obligations with regard to transfer pricing: (i) to make a declaration to the tax authority in respect of each related party, when entering into a transaction with that party for the first time, and in respect of termination of the related party status, (ii) to maintain transfer pricing documentation with regard to every related party transaction (save where an express exemption applies) and (iii) either to use arm’s length prices in related party transactions, or to adjust their corporate income tax base as if arm’s length prices had been used. The above requirements apply vis-à-vis both foreign and domestic related entities. The legal definition of “related party” is lengthy, but the term generally refers to holdings of 50% or more.
REITs and the IP regime
Hungary has a REIT regime, according to which there are corporate income tax, property transfer tax and local tax exemptions for investments in property. In order to qualify, the REIT must have initial capital of at least EUR 33 million, at least 25% of its shares must be listed and held by small investors and at least 90% of its profits must be distributed each year. The REIT’s portfolio may contain properties located abroad as well as in Hungary.

Hungary’s IP regime is also highly beneficial. Firstly, royalty income may benefit from an effective 5% corporate income tax rate. Further, there are two ways to achieve tax exemption on capital gains from the sale of IP rights. One option is to use a roll-over relief mechanism, whereby the capital gains can be used to buy new IP rights in lieu of those sold. The second option is analogous to the participation exemption regime described above (involving notification and a minimum holding period). This may also be utilised by entities relocating their tax residency to Hungary.
Value Added Tax
The Hungarian value added tax regime is based on and essentially complies with the framework of the EU Directives. The standard rate of VAT is now 27%, which is the highest in the EU. An 18% preferential rate applies to socially sensitive food products and hotel services. A second reduced VAT rate of 5% applies to books, daily and other newspapers, medicines and medical goods, and central heating etc.
Personal Income tax
There is now only one (flat) rate of personal income tax, which is 16%. In cases where the tax is paid by the payer (employer) and it cannot be deducted from the income provided (mostly in the cases of income provided in kind), a 1.19 multiplier is used so that the payment of the correct amount of tax is ensured. In addition, the very generous family allowance can be used to reduce the tax base and, in many cases, can result in effective tax of nil.
There are also payroll and similar taxes in place, such as the healthcare contribution. The rate of this contribution may be 10%, 14% (partially capped) or 27%, depending on the type of income in question. It is usually payable by the party paying the remuneration, though in some cases it is payable by the recipient.
In respect of employment income, the employer pays a total of 28.5% of gross salary and the employee a total of 18.5% in payroll taxes and contributions.
Montenegro
General introduction
The tax system of Montenegro is mainly centralised and investor friendly.

Most important taxes
  • Value added tax: 0%, 7% and 19%
  • Corporate income tax: 9%
  • Personal income tax: rates of 9% and 15% (the 15% rate is only applicable in 2013)
  • Property tax: 0.1% to 1%
  • Real estate transfer tax: 3%

Excise duties on oil derivatives, tobacco products, alcohol and alcoholic beverages, coffee and carbonated water
Corporate tax
The entities subject to corporate taxation are resident legal entities and non-resident entities generating profit through permanent operating units or receiving income subject to withholding tax. Taxable income is based on accounting profit, which is further adjusted for tax purposes. The tax rate is 9%.

For newly established entities performing certain manufacturing operations in economically underdeveloped municipalities, tax incentives up to 100% of the tax payable are available in the first eight years of business.
Tax loss carried forward
Any losses incurred from business activities may be carried forward and used to reduce the taxable base for a period of 5 years.
Participation exemption
  • Dividends received from a company resident in Montenegro are subject to withholding tax but are not included in taxable income.
  • Dividends received from a non-resident company are not subject to the participation exemption, but a tax credit is available for any withholding tax paid abroad.

Thin capitalisation
There are no specific thin capitalisation rules, but interest paid to a non-resident must be on arm’s length terms, regardless of whether the recipient is a related or non-related party. Note however that there is a general discussion on the introduction of thin capitalisation rules.
Withholding tax
Dividends, interest, royalties, capital gains, fees for leases of real estates and movables, fees for consulting services, services for marketing research and development and audit services are subject to withholding tax at the rate of 9%.
Transfer pricing
Transactions between related parties must be at arm’s length. The comparable uncontrolled price method should be applied. In the absence of any direct comparables, the taxpayer may resort to the cost-plus or the resale price methods. The Montenegrin Corporate Tax Law does not impose a specific obligation to maintain transfer pricing documentation and does not explicitly regulate the content of transfer pricing documentation. However, it is expected that the content of transfer pricing documentation will soon be regulated in a separate rulebook to be issued by the Ministry of Finance.
Tax consolidation
Tax consolidation is allowed for groups of companies where all members are Montenegrin residents and one company directly or indirectly controls at least 75% of the shares in the other companies. The losses of one or more companies may then be set off against profits of the other companies of the group. Tax consolidation must continue for at least five years
Value Added Tax
Any person who independently carries out any economic activity at any place is a taxable person, whatever the purpose or result of such activity. VAT is payable on all supplies of goods and services and imports of goods made for consideration in Montenegro by a taxable person acting as such.Taxpayers with annual revenue higher than EUR 18,000 are obliged to register for VAT. The VAT Law generally follows the EU VAT Directive. The applicable tax rates are 19%, 7% (basic products for human consumption, medicines, textbooks and teaching aids, books and serial publications, daily and periodic press, accommodation, services of public transportation and hygiene, etc.) and 0% for exports.
Personal Income Tax
Montenegrin tax residents are liable to pay income tax on their worldwide income while tax non-residents are liable to income tax on Montenegrin sourced income only. The personal income tax rate for all types of income (employment, self-employment, property and property rights, capital, and capital gains) is 9%, although income from employment which exceeds 720 EUR is taxed at a rate of 15%. The tax rate of 15% will be applicable until the end of 2013.
Social Security / National Insurance Payments
Social security contributions are due from both employers and employees on gross salary and from self-employed individuals. The maximum base for pension and disability insurance will be adjusted annually by the Ministry of Finance.
The social security contributions paid by employers / employees respectively are as follows:
  • Pension and disability insurance: 5.5% / 15%
  • Health insurance: 3.8% / 8.5%
  • Unemployment insurance: 0.5% / 0.5%

The maximum base for contributions in the calendar year is EUR 50,000.
Other
Real Estate Transfer Tax
This tax is payable by the purchaser of the property. The tax base is the property’s market value. The rate is 3%.
Real Property Tax
Property tax is levied on immovable property located in Montenegro, at a rate of 0.1% - 1%. For certain types of real estate the rate may be up to 5.5%.
Inheritance Taxes
Taxes are levied on inheritances / gifts at rates up to 2%.
Double Tax Treaties
Montenegro has 35 treaties in place.
Poland
General introduction
The tax system in Poland has been gradually reformed since the 1990s and has undergone frequent and fundamental changes. As a result, it is complicated and contains provisions that are difficult to follow.
Foreign investors may experience some difficulties arising from Polish tax law, for example all communications with tax authorities must be in Polish and the tax authorities are very formalistic and bureaucratic in many situations. Moreover, tax law is subject to frequent amendments and therefore requires special attention. For this reason, employing a local adviser is a must.
Foreign collective investment undertakings have to comply with restrictive administrative burdens in order to benefit from tax exemptions. Furthermore tax incentives concerning research and development investments are encumbered with strict formal requirements that are difficult to meet. There is a friendlier tax regime for small and medium enterprises, in that they can opt for simplified income tax and cash method for settling VAT, amongst other things. In addition, up to a certain level of income they are relieved from full bookkeeping requirements.
The current rates of the main taxes are
  • Personal income tax: 18% and 32% for individuals, 19% for sole traders or partners in partnerships
  • Corporate income tax: flat 19% rate
  • VAT – basic rate: 23%, reduced rates: 8%, 5% and 0%

Corporate Income Tax
Scope
The Corporate Income Tax Law (the “CIT Law”) lays down the rules under which income received by legal persons is taxed. Legal entities with Polish CIT residency are taxed on their worldwide income, while non-residents are subject to CIT on income generated in Poland, unless an applicable double tax treaty provides otherwise. The basic CIT rate is 19%. The CIT Law also provides for tax exemptions and reliefs.
Taxable base
CIT is payable on the total taxable income earned during a tax year, i.e. the difference between aggregate taxable revenue and aggregate tax-deductible costs. Tax losses may be carried forward and offset against income in the following five tax years. However, only 50% of the loss may be deducted in any one year.
Withholding tax and participation exemption
Provided that a relevant tax treaty does not provide otherwise, payments of interest and royalties made to foreign entities are subject to 20% withholding tax. Payments made by a Polish company to an EU-based (or EEA-based) related company are subject to 5% withholding tax until 30 June 2013, and fully exempt after that date, provided that (i) the EU or EEA-based related company has held at least 25% of the share capital of the Polish company, or (ii) the Polish company has held at least 25% of the share capital of the EU or EEA-based related company, or (iii) another EU or EEA-based company has held at least 25% of the share capital in both the paying and receiving company, for a period of two years, and the related company is not exempt from tax in its country of residence. The two-year holding requirement may also be satisfied after payment. Dividends are subject to 19% withholding tax. However, if a beneficiary: (i) is established in an EU or EEA country, or in Switzerland; (ii) is not exempt from tax in its country of residence, and; (iii) holds not less than 10% of the shares in the Polish company (25% for Switzerland) for at least two years, the dividend is exempt from withholding tax. Dividends or similar income paid by Polish companies to other Polish companies are subject to a participation exemption from corporate income tax. This applies where the beneficiary holds at least 10% of the company’s shares for at least two years.
Transfer pricing
The Polish transfer pricing regulation is based on the arm’s length principle and generally follows the OECD Transfer Pricing Guidelines. For transfer pricing purposes, parties are treated as related if one of them participates, even indirectly, in the management or control of the other, or holds at least 5% of its shares. Parties are also treated as related if a third-party controls or holds shares in them. If a transaction is deemed not to be at arm’s length, the tax authorities may substitute market prices for the actual transaction prices. If a company enters into transactions with related parties or parties that are residents of “tax havens”, then transfer pricing documentation must be prepared.
Value Added Tax
Scope
Polish VAT law is harmonised with EU regulations. VAT payers include legal persons, organisational units without legal personality and individuals that independently carry out a business activity. Taxpayers are required to register for VAT purposes in Poland. If they plan to engage in EU activities, they must also register as EU VAT payers.
VAT rates
The standard VAT rate is 23% and applies to almost all supplies, unless the regulations explicitly provide for one of the reduced rates of 8% and 5% to apply. These rates have been introduced in response to the current financial crisis and will remain in force until the end of 2013, after which the 23% and 8% rates will return to 22% and 7% respectively, while the 5% rate will remain unchanged. The reduced rate of 8% is applicable inter alia to health-related goods and books. Supplies of certain agricultural products are subject to VAT at 5%, while certain other transactions are subject to a 0% VAT rate, e.g. the supply of ships to ship-owners. Furthermore, a number of supplies of goods and services are exempt from VAT without the right to deduct input VAT, e.g. certain financial and insurance services.
VAT calculation
VAT returns are submitted either monthly or quarterly. The amount of VAT due is calculated as the amount of output VAT after deduction of input VAT. However, in respect of some goods and services (such as accommodation and catering services) there is no right to deduct the input VAT incurred by the receiving party. In this regard the regulations do not necessarily reflect EU law.
Personal Income Tax
Scope
The Personal Income Tax Law (the “PIT Law”) is similar to the CIT Law. The details of PIT taxable revenue, tax deductible costs and tax exemptions are much the same as for the CIT Law. Generally, individuals pay tax on their salary income or self-employment income. Polish residents are taxed on their worldwide income while non-residents are only subject to Polish tax on income generated in Poland.
Tax rates
Salary income is subject to progressive taxation with a two-bracket structure. The PIT Law provides for an initial allowance of PLN 556.02 on the lowest income bracket. The tax rates and brackets are as follows:
Tax base (PLN)
  • up to PLN 85,528: 18% of the amount remaining after deducting the allowance of PLN 556.02
  • above PLN 85,528: PLN 14,839.02 plus 32% of the amount exceeding PLN 85,528

Sole traders or partners in partnerships can, under certain conditions, opt for a flat 19% income tax rate.
Social security
Social security in Poland consists of pension, disability, sickness and accident insurance. All are payable on a monthly basis and are calculated on the basis of the employee’s gross salary. The rates of the contributions are:
  • Employer’s contributions in percentage of gross salary
    • Pension: 9.76%
    • Disability: 6.50%
    • Sickness -
    • Accident: 0.40% to 8.12%
  • Employee’s contributions
    • Pension: 9.76%
    • Disability: 1.50%
    • Sickness: 2.45%
    • Accident -


Additionally, employers are obliged to withhold employee healthcare contributions of 9%. However, 7.75% of this is deductible from the employee’s PIT. The remaining 1.25% is calculated on the basis of gross salary less employee’s pension, disability and sickness contributions.
Other relevant issues and taxes
Apart from the taxes described above, there are 9 additional taxes, including real estate tax and excise duty. Recently, the Polish government proposed a number of changes to the CIT Law; the changes include imposing CIT on limited partnerships and partnerships limited by shares. The Polish authorities are currently pursuing a policy of amending tax treaties. Lately Poland and the USA have signed a new double tax treaty and the ratification procedures are in progress. Furthermore, a general overhaul of VAT regulations will take effect in 2014. However, some regulations enter into force in 2013.
Romania
Rodica Manea
CMS Cameron McKenna SCA
E rodica.manea@cms-cmck.com
With the support of:
Ionut Zeche
Mirus Advisory Services
E izeche@mirus-group.eu
General introduction
Due to continuous changes made to the tax legislation in recent years, the Romanian tax system is seen as complex and difficult to follow. The Romanian tax authorities are still bureaucratic. The lack of procedures, or the highly bureaucratic nature where there are procedures in place, often causes issues for both individuals and companies.

The tax authorities have recently tried to address the problem by creating a more user–oriented system through on-line tax portals, but implementation of this system is still at an early stage.
Summary of taxes
Most types of income earned by individuals are taxed at a flat rate of 16%. Both Personal income tax and Corporate income tax fall under this default tax percentage. The standard Value added tax (VAT) rate is 24%. Reduced VAT rates of 9% and 5% apply for some exceptions on goods. Income from real estate transactions is taxed at a 1% to 3% rate.

Tax rates and rules can also vary if you are a resident or non-resident of Romania. Foreign individuals are generally subject to Romanian taxation only for income sourced in Romania, and usually need to retain tax representation by a Romanian proxy.
Corporate tax
Companies are considered tax resident in Romania if their head office is registered in Romania or its effective place of business is located in Romania. The standard corporate income tax rate is 16%.

Foreign companies are subject to corporate tax if they meet any of the following criteria:
  • The company is doing business in Romania through permanent establishments
  • The company derives revenue from or in connection with real estate transactions or from share transactions in Romanian companies
  • The company is involved in a partnership with another company or individuals within Romania with or without legal capacity.

Losses
Companies are allowed to carry losses forward for a period of seven years if they were incurred on or after January 2009. For any losses incurred before 2009, these can be carried forward for a period of five years.
Dividends
Dividends paid by a Romanian company to another Romanian company are subject to 16% dividend income tax. They are non-taxable if, at the date of payment, the beneficiary has held a minimum of 10% of the shares in the other company for at least two years.

There are some cases where dividends paid by a Romanian company or a company that has its headquarters in Romania to a company or a permanent establishment of a company resident in another EEA country can be tax exempt.

To qualify, the non-resident company which benefits from the dividends must:
  • Be one of the legal forms specifically identified as eligible
  • Pay profits or similar taxes in their country of residency
  • Holds a minimum of 10% of the shares in the Romanian company for an uninterrupted period of at least two years up to the date of payment.

Interest and Royalties
Interest and royalties payments by Romanian companies to other Romanian companies are exempted from withholding tax but are taxable income at the level of the beneficiary, as part of its corporate income tax base.
After January 2011, any income from interest or royalties derived from Romania by companies or permanent establishments of companies from EEA countries are also exempt from withholding tax if, at the date of payment, the recipient of the income has held at least 25% of the taxpayer’s shares for a minimum of two years.
Additional Capital Gains tax
No additional capital gains tax is payable by resident entities as capital gains are included in ordinary profit and taxed at 16%. Capital gains from the sale of immovable property located in Romania or the sale/transfer of shares held in a Romanian legal entity are taxed at the standard corporate tax rate of 16%, unless a Double Tax Treaty concluded with the relevant country provides otherwise.
Thin capitalisation
Thin capitalisation rules determine how much of the interest paid on corporate debt is deductible for tax purposes and determine the deductibility of interest expenses and net foreign exchange losses.

Deductibility is calculated using the below criteria:
  • Debt included in the calculation of the debt-to-equity ratio is represented by all loans (non-financial institution) over one year.
  • Equity includes share capital, share / merger premiums, reserves, retained earnings, current year earnings and other elements. Both debt and equity are calculated as the average of values existing at the beginning and at the end of the period for which profit tax is calculated.
  • If the debt-to-equity ratio is higher than 3:1 or if the company’s equity is negative, interest charges and net foreign exchange losses on loans with a maturity date beyond one year are non-deductible.
  • Expenses considered non-deductible under this rule may be carried forward and may become tax deductible in the year in which the debt-to-equity ratio becomes lower than or equal to 3:1.

Transfer Pricing
Romanian Tax Authorities have laid out some best practices for Transfer Pricing:
  • Transactions between related parties should follow the arm’s length principle. If transfer prices are not set at arm’s length, the Romanian tax authorities are entitled to adjust them to reflect market value.
  • Transfer pricing adjustments have implications for both corporate tax and VAT base purposes.
  • Traditional transfer pricing methods, or any other method that is in line with the OECD Transfer Pricing Guidelines, may be used for setting transfer prices.

Value Added Tax
The standard VAT rate is 24%. Reduced VAT rates of 9% and 5% apply to certain goods and services.
VAT chargeability occurs on the date of the supply of goods / services.
Value Added Tax (VAT) is applied to operations if:
  • The supply of goods / services is in return for a consideration.
  • The place of supply is in Romania.
  • They are performed by taxable persons.
  • They result from economic activities.

In addition, VAT also applies to the import of goods, intra-community acquisitions of goods and operations deemed to be intra-community acquisitions of goods.
VAT Registration
Taxable persons who want to register for VAT purposes can opt for one of the following:
  • Standard VAT registration of companies established in Romania.
  • Special VAT registration of Romanian companies for intra-community acquisitions.
  • VAT registration of taxable persons established / non-established in the EU through appointment of a VAT Fiscal Representative.
  • Direct VAT registration of taxable persons resident in the EU.

Romanian companies may be required to register for VAT purposes in other EU Member States where they perform operations. The annual VAT registration turnover threshold for Romania is the RON equivalent of EUR 35,000.
VAT Deductions
Any taxable person has the right to deduct the VAT related to acquisitions, if these are to be used for generating taxable revenues. Input VAT related to expenses incurred from set-up transactions can be retroactively deducted when all requirements for VAT deductibility are fulfilled, within a maximum period of five years.

VAT related to goods and services that are not purchased for business purposes is non-deductible.
Personal income tax
Taxation of Residents

Romanian citizens resident in Romania are taxed on their worldwide income (except for salaries received from abroad for work performed abroad). There is a flat rate income tax of 16%. Mandatory social security charges are deductible for income tax calculation purposes. That part of pension income which exceeds RON 1,000 per month is taxable at a flat rate of 16%.
  • Employee Contributions:
    • Social Security contribution: 10.5% (capped)
    • Unemployment fund: 0.5%
    • Health fund: 5.5%
  • Employer Contributions:
    • Social Security fund: 20.8% (capped)
    • Health fund: 5.2%
    • Medical leave: 0.85% (capped)
    • Guarantee Fund: 0.25% of the salary fund
    • Unemployment fund: 0.5%
    • Work accidents, risk insurance and occupational disease fund: 0.15% to 0.85%

Taxation of Non-Residents
For employees of Romanian companies, or branches and representative offices of foreign companies (and directors of such companies where they are remunerated under service contracts), the employer is required to calculate, withhold and transfer income tax on a monthly basis. Foreign individuals (and Romanians resident outside Romania) in their first year of activity in Romania are generally subject to Romanian tax only with respect to Romanian sourced income. This period may be extended if specific criteria are met.

Foreign individuals performing activities in Romania under foreign employment contracts must submit a monthly income statement and pay monthly income tax. Income earned by non-resident individuals from activities in Romania or from income in Romania is generally subject to 16% tax unless the tax is reduced or eliminated under an applicable double tax treaty.
Other taxes
Property tax: 0.1% for buildings owned by individuals and 0.25 to 1.5 for buildings owned by legal entities (10% to 20% if not revalued within the last 3 years and 30% to 40% if not revalued within the last 5 years).
The tax due in respect of nightclubs and gambling activities is 5% of the generated revenues or 16% of taxable profits, whichever is higher.

Rental Income Tax: 16%; taxable income is determined by deducting the expenses used for repairs and redesign or by deducting a 25% expense allowance from the gross income. Currently, Romania does not have an inheritance or net wealth tax regime.
Double tax treaties
Romania currently has double taxation treaties with 85 countries. When certain income is taxable under the Romanian law but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed according to the provisions of the respective countries Taxation Treaty.

As of 1 February 2013, new provisions of Romanian tax law have introduced a 50% tax on income derived from dealings with countries with which Romania does not have exchange of information arrangements. At present, Romania does not have a CFC regime or disclosure requirements.
Russia
General introduction
There are three levels of taxes in the Russian Federation:
  • Federal taxes: VAT, corporate income tax, excise taxes, personal income tax, mineral resources extraction tax
  • Regional taxes: company property tax, transport tax, gambling tax
  • Local taxes: land tax, individual property tax

Corporate Income Tax
Corporate income tax is paid by:
  • Russian legal entities (on their worldwide income)
  • Foreign legal entities doing business in Russia through a permanent establishment and/or receiving Russian-sourced income

The general corporate income tax rate is 20% (2% accruing to the federal budget and 18% to the regional budget, though this may be reduced to 13.5%). Expenses are deductible if they are related to the taxpayer’s business, economically justified and properly supported with documentation. Some expenses are non-deductible or partially deductible (e.g. penalties payable to the State Treasury, some advertising expenses). Tax treaties may help in deducting these expenses.
On 1 January 2012 a tax consolidation regime entered into force, applicable only to so-called “important taxpayers” (conditions: a shareholding of more than 90% in Russian subsidiaries, total group taxes ≥ RUB 10 billion (approx. EUR 250 million); total group revenue ≥ RUB 100 billion (approx. EUR 2.5 billion); total group assets ≥ 300 billion (approx. EUR 7.5 billion). A new transfer pricing regime also entered into force on 1 January 2012. The new law has been drafted according to the OECD rules and provides for five transfer pricing methods: comparable uncontrolled price (top priority method), resale minus, cost plus, comparable profitability and profit split. This new law also makes it compulsory to draw up a transfer pricing report and to provide certain other documents.
Participation-exemption regime
Dividends received by a Russian company are taxed at a 9% flat rate (even if received from a foreign entity).
A participation exemption applies if the following conditions are met:
  • participation of at least 50% in the distributing company (or depositary receipts giving an entitlement to more than 50% of financial rights)
  • one-year minimum holding.

However, the exemption does not apply to dividends received from companies residing in low-tax or “black-listed” jurisdictions (the list of these jurisdictions has been produced by the Ministry of Finance).
Thin-capitalisation regime
Thin capitalisation rules apply where a Russian company has an outstanding debt (“a controlled debt”):
  • to a foreign company that holds (directly or indirectly) more than 20% of the Russian company’s share capital, or
  • to a Russian company that is an affiliate of the aforementioned foreign company, or
  • in respect of which the above affiliated person and / or the foreign company itself act as a guarantor or surety, or otherwise guarantee repayment of the debt by the Russian debtor company, and
  • the debt-to-equity ratio exceeds 3:1 (12.5:1 for banks and leasing companies).

According to Russian thin capitalisation rules, interest payments which exceed the threshold are non-deductible, qualify as dividends and are subject to withholding tax.
Corporate Property Tax
In general, Corporate Property Tax applies to the value of fixed assets held by Russian companies or foreign companies located in Russia, at a rate set at regional level. This cannot exceed 2.2%.
Value Added Tax
The standard VAT rate is 18%. A reduced 10% rate applies to books, periodicals, medical goods, some foods and children’s clothes.
A 0% VAT rate applies to the following transactions:
  • Exports of goods outside Russia
  • Works and services relating to the transit of goods
  • Some services and goods supplied to foreign diplomatic missions etc.

Personal Income Tax
Tax residents (persons present for at least 183 calendar days during a 12-month rolling period) are taxed on their worldwide income at the following rates:
  • 13% for most types of income
  • 9% for dividends received from Russian or foreign companies
  • 35% for prizes, insurance receipts and interest on bank deposits in excess of specific limits.

Non-residents are liable for tax on their Russian-sourced income at the rate of 30%, irrespective of the type of income (dividends are subject to a withholding tax of 15%). It may be possible to apply the relevant provisions of a tax treaty to exempt certain types of income from Russian non-resident taxation. Foreign employees having the status of a “Highly Qualified Specialist” (HQS - employees of Russian entities or branches of foreign entities earning more than RUB 2,000,000 (approx. EUR 50,200) gross per year) are subject to personal income tax at the rate of 13% regardless of whether they are Russian tax residents or not.
Social Contributions
Employers, both Russian companies and branches of foreign entities, are subject to contributions to social funds from the remuneration paid to their employees. From 1 January 2012, the general rate of these contributions is 30% (some types of small businesses benefit from a lower rate of 20%) which is applicable to gross annual remuneration of up to RUB 512,000 (approx. EUR 13,000). 10% is levied on the excess. In 2013 the aforesaid threshold equals to RUB 568,000 (approx. EUR 14,200). From 1 January 2012, Employers are required to pay social contributions on the remuneration of all foreign employees as well. Nonetheless, foreign employees with temporary stay permit status are exempt from social contributions, except for payments made to Pension Fund at the general rate 22% and 10% upon reaching the threshold above. Salaries of foreign employees with HQS status are not subject to social contributions at all.
Serbia
General introduction
The tax system in the Republic of Serbia is mainly centralised and investor friendly. Most taxes are collected at national level, with the exception of property tax, which is collected on a municipal level.
Most important taxes
  • Value added tax: 0%, 8% and 20%
  • Corporate income tax: 15%
  • Personal income tax: depends on type of income (rates between 10% and 20%) Additional annual income tax is levied on income exceeding the prescribed threshold (progressive rates of 10% and 15%)
  • Property tax: 0.4% to 2%
  • Real estate transfer tax: 2.5%
  • Excise duties on oil derivatives, tobacco products, alcoholic beverages and coffee

Corporate tax
The entities subject to corporate taxation are resident legal entities and non-resident businesses generating profit through permanent operating units (branches, plants, representative offices, places of production, factories, workshops etc.). The taxable base is determined by adjusting accounting profit, as stated in the profit and loss statement, pursuant to the provisions of corporate profit tax legislation. Capital gains are recognised as part of the corporate profit tax assessment, but they are not pooled with general income. The tax rate is 15%.
Tax loss carried forward
Any tax losses incurred in the course of commercial, financial and non-commercial transactions and declared in the tax return, with the exception of capital gains and losses (capital gains are treated separately, although they are included in the tax return), may be carried forward and used to reduce the taxable base for a period of 5 years.
Participation exemption
  • Dividends received from a company resident in Serbia are exempt from corporate income tax.
  • Dividends received from a non-resident company are not exempt, but a tax credit is available.

Thin capitalisation
Interest on loans from associated persons is not recognised as an expense if the loan exceeds four times (ten times for banks and financial leasing companies) the amount of the taxpayer’s equity (4:1 /10:1 debt-to-equity ratio). If the interest rate on a loan exceeds the reference interest rate published by the Ministry of Finance for the given currency, such interest is not tax deductible (arm’s length principle) unless a taxpayer chooses to apply the general rules for determining arm’s length prices prescribed by the law, in which case they may be deductible.
Withholding tax
The tax base is income received by a non-resident taxpayer. Dividends, copyright fees, interest, capital gains and consideration for leases of real estate and movables are taxed at the rate of 20%, unless otherwise provided by a double tax treaty. If copyright fees, interest, consideration for leases of real estate and movables or fees for supply of services, regardless of where they were supplied or used, are received by a non-resident from a jurisdiction with a preferential tax regime or its permanent establishment in Serbia, they are taxed at the rate of 25%.
Transfer pricing
Transfer pricing issues are regulated by the Serbian Corporate Profit Tax (CPT) legislation. Although Serbia is not a member of the OECD, the Serbian CPT Law adopted principles from the OECD Transfer Pricing Guidelines and will continue to align its transfer pricing legislation with international sources such as the Guidelines. The Serbian CPT Law does not impose a specific obligation to maintain transfer pricing documentation and does not explicitly regulate the content of transfer pricing documentation. However, it is expected that the required content of transfer pricing documentation will soon be regulated in a separate rulebook from the Ministry of Finance. The CPT Law does stipulate which transfer pricing methods can be used (comparable uncontrolled price, cost plus, resale price, transactional net margin, profit split or any other method if the previous methods are not applicable or another method is more appropriate) and also lays down an obligation to declare transactions between associated persons in the tax return.
Tax consolidation
Tax consolidation is allowed for groups of companies where all members are Serbian residents and one company directly or indirectly controls at least 75% of the shares in the others. Tax consolidation must continue for at least five years, otherwise each company will have to pay all the tax it would have paid if there had been no consolidation.
Value Added Tax
Any person who independently carries out any economic activity at any place is a taxable person, whatever the purpose or result of such activity. VAT is payable on all supplies of goods and services made for consideration in Serbia by a taxable person acting as such, and also on imports of goods.
The VAT Law generally follows the EU VAT Directive. The applicable tax rates are 8% (certain foods and beverages, medicines, textbooks and teaching aids, newspapers, accommodation, utility services, etc.) and 20%. Financial, educational, medical and cultural services etc. are exempt.
Personal Income Tax
Personal income tax applies to an individual’s income. Residents are liable to income tax on their worldwide income (i.e. income from Serbia and abroad). Non-residents are liable to income tax on Serbian income only. The personal income tax rate for salaries is 10%. Income from self-employment, agriculture and forestry, dividends and capital is taxed at a rate of 10%, while other types of personal income (royalties, rent and other income) are taxed at a rate of 20%.
In addition, annual income tax applies to income that exceeds three times the amount of the average annual salary for all tax residents. Annual income tax rates are progressive. For income in the range of three to six times the average annual salary, the rate is 10%; for income above six times the average annual salary, the rate is 15%.
Social Security/National Insurance Payments
Mandatory social security contributions are due from both employers and employees at a total rate of 37.8% of gross salary and from self-employed individuals. The maximum base is five times average gross salary.
The social security contributions paid by self-employed individuals and employers/employees are respectively as follows:
  • Pension and disability insurance: 24% / 11%
  • Health insurance: 12.3% / 6.15%.
  • Unemployment insurance: 1.5% / 0.75%.

Other
Real Estate Transfer Tax
This tax is payable by the seller of the property. The tax base is the property’s market value. The rate is 2.5%.
Real Property Tax
Property tax is levied on immovable property located in Serbia, at a rate of 0.4%-2%. For companies, the property tax rate is 0.4%. The taxable base is generally the market value / book value of the property.
Inheritance Taxes
Taxes are levied on inheritances / gifts at rates of 1.5% and 2.5%.
Double Tax Treaties
Serbia has 58 treaties in place.
Slovakia
Róbert Janeček
E janecek@ccstax.sk
General introduction
The Slovak tax system is making efforts to be friendly to foreign investors. However, the amount of red tape attaching to tax proceedings before the Slovak tax authorities, together with the frequent changes in the tax legislation, threatens to obstruct those efforts. The Slovak tax system seems to be simple, but it is also very formalistic and, from an administrative point of view, demanding. This significantly affects the stability of the economic environment.
The Slovak tax system now includes the following taxes:
  • Corporate income tax: 23%
  • VAT: 20% standard rate, 10% special rate for certain goods and services
  • Personal income tax: 19% with a tax credit and progressive tax allowance or 25% on that part of income which exceeds EUR 33,600 per year
  • Mandatory contributions for social security and health care insurance
  • Excise taxes: tobacco, wine, alcohol, mineral oils, beer, electricity, gas, coal
  • Municipal taxes: real estate tax, motor vehicle tax, accommodation tax, etc.
  • Other charges under specific legislation: administrative fees, court fees, etc.

Corporate Income Tax
Corporate Income Tax (CIT) is levied on the worldwide income of Slovak legal entities and the Slovak income of foreign legal entities. However, income arising from a gift or inheritance, or from dividends received from local or foreign subsidiaries, is not subject to CIT. The tax base for CIT is taxable revenues less tax deductible costs incurred in the generation of such revenues. This is based on the yearly accounting result, which is reported in compliance with Slovak Accounting law. The general tax rate is 23%.
Thin capitalisation rule
Slovakia does not have a specific limit on thin capitalisation. However, credit and loans granted by a foreign related party are limited by the arm’s length principle.
Transfer pricing
Transfer pricing is currently considered to be a high priority issue in Slovakia. Slovak taxpayers who enter into transactions with foreign affiliated entities (known as “controlled transactions”) must review their scope and pricing. This review should be based on the principles of the OECD Transfer Pricing Guidelines. The Slovak Income Tax Act stipulates methods which are to be used by taxpayers to establish that the prices charged between related parties are in line with the arm’s length principle. Slovak companies must also keep written records of all controlled transactions entered into with related parties outside Slovakia. The same applies to transactions between tax residents and their permanent establishments located in Slovakia or abroad.
The contents of the documents required to be kept are specified in guidelines issued by the Ministry of Finance. As proof of correct application of the arm’s length principle, tax inspectors will require, at a minimum, simple documentation containing basic information about the group and the scope of activities of its member companies. Generally speaking, local affiliates do not have to submit this documentation, unless asked during a tax audit or for the purpose of obtaining approval of the chosen transfer pricing method. Such documentation could also be required in respect of an advance pricing arrangement (APA) in line with the OECD Transfer Pricing Guidelines.
Tax losses
It is possible to deduct a tax loss from the tax base over no more than seven (7) consecutive tax periods following that in which the loss was recorded. In relation to mergers, this rule allows the successor company to deduct the tax loss recorded by the predecessor company, provided that the purpose of the merger was not solely to reduce the tax base of the legal successor.
Group regime
The Slovak tax regime does not allow any tax consolidation for groups of companies. Every legal entity which is part of a group is treated as a separate, stand-alone entity subject to tax, with its own rights and liabilities with regard to the tax authorities and proceedings. It is not possible to deduct tax losses generated by one company and offset them against the tax base of another company in the same group.
Interest and royalties directive
Slovakia transposed EU directives relating to the withholding tax exemption for intra-group interests and royalties in 2004. If such income arises between related parties where the holding company has at least a 25% interest in the other company; or between two companies in which a third company has a holding of at least 25% (for at least 24 months in both cases), such income is exempt from withholding tax regardless of the provisions of the relevant double tax treaty.
Dividends
Dividends received from domestic and foreign legal entities are not subject to Slovak corporate income tax, provided that they are paid from the after-tax profits of the payer. Dividends paid by companies established in Slovakia to local or foreign shareholders are not subject to withholding tax regardless of the provisions of the relevant double tax treaty.
Investment incentives
The Slovak Republic has adopted a special law to encourage investment and provide for tax incentives, in the form of tax relief for certain taxpayers for a limited period. These must be local entities participating in a government programme of assistance for foreign investors and recipients of investment incentives. The European Committee’s approval, followed by that of the Slovak authorities, is required for these incentives, as they are considered to be state aid under European legislation and no general exemption is available in respect of them.
Value Added Tax
Since 1 January 2011, Slovakia has charged 20% standard VAT on supplies of goods and services. This rate will be changed to 19% in the year that the European Commission determines that Slovakia’s budget deficit is lower than 3%. A reduced rate of 10% applies to medication and pharmaceutical products, and medical tools and devices. Books and printed media also benefit from this rate, except newspapers and publicity material, i.e. leaflets containing more than 50% advertisements. Imports (from non-EU countries) are subject to VAT, which is levied by the customs authority on a taxable base calculated as the sum of customs value, customs duties, fees and excise tax. Financial and insurance services, together with social, healthcare and other non-profitable services, are tax exempt.
VAT is fully harmonised and complies with the EU VAT Directive. A taxable person is obliged to register for VAT purposes if it achieves turnover of EUR 49,000 over a period of 12 consecutive months. For entities not exceeding this threshold, voluntary VAT registration is possible, but this possibility is considerably limited for newly established companies without an impressive business history and the tax authority will demand a deposit before first registration. In relation to taxable purchases, entities considered to be suspicious must guarantee the VAT payable by their supplier, or registration may be refused as part of the effort to combat carousel fraud.
A group of businesses with financial, economic and organisational links can register as a VAT group using a single identification number. Each business must be a taxable entity and must not be a branch or division of a taxable entity of a foreign country. The VAT group must appoint a representative who acts on behalf of all group members for VAT purposes and whose role is limited to ensuring compliance with the VAT Act. As from 1 January 2012, VAT processing in the Slovak Republic is fully electronic (including the refund procedure, VAT declarations and e-communication with the Slovak tax authority) Electronic invoicing has become common and complies with European legislation.
Personal Income Tax
Personal income tax is collected by local employers. All tax obligations relating to personal income tax are fulfilled by the employer on behalf of the employee. The personal income tax rate is 19%, but income exceeding EUR 33,600 per year is taxed at 25%. Individuals are entitled to basic tax allowance, which is progressively reduced for taxpayers with higher income. The full annual tax allowance of EUR 3,645 is available to taxpayers with earnings of up to EUR 18,983. Entitlement to the allowance lapses entirely when a person’s annual earnings exceed EUR 33,562. Taxpayers who live with an unemployed spouse are entitled to an additional allowance. Personal income tax may be further decreased by a tax credit in the amount of EUR 250 for every child living with the taxpayer (up to the child’s 26th year).
Employees must ask their employers to make their annual tax returns. Otherwise, they are obliged to submit an income tax return themselves, generally no later than 31 March of the following year. Social and health care insurance contributions are collected by the employer in the same manner as income tax. The employee’s social security contributions are deductible from his/her income tax base. The rates are as follows:

  • Employee insurance rate
    • Illness: 1.40%
    • Pension: 4%
    • Disability: 3%
    • Unemployment: 1%
    • Health Care Insurance: 4%
  • Employer insurance rate
    • Illness: 1.40%
    • Pension: 14%
    • Disability: 3%
    • Unemployment: 1%
    • Guarantee: 0.25%
    • Injury: 0.8%
    • Solidarity reserve fund: 4.75%
    • Health Care Insurance: 10%

Other tax issues
The Slovak tax system benefits from numerous double tax treaties, entered into with many jurisdictions. Being a member of the EU, Slovakia also has the benefit of EU legislation, which has a definite impact on the tax system. To ease communication with the Slovak tax authority, it is recommended to appoint a tax representative.
Slovenia
General introduction
Following the reforms of the last decade, public administration has become friendly and user oriented (e-government and e-tax portals), modern and flexible (shorter and simplified procedures, introduction of agency for investment and promotion).In line with these public administration reforms, the tax administration, though still somewhat bureaucratic and formalistic, has also progressed to a level where it can be said to serve its purpose well.
Major Taxes
  • Corporate Income Tax
    • General rate: 17% (16% in 2014, 15% from 2015 onward)
    • Qualifying venture capital companies, investment funds and pension funds: 0%
  • VAT
    • Standard rate: 22%
    • Reduced rate: 9.5%
  • Personal Income Tax
    • Progressive tax brackets: 16%, 27%, 41%, 50% (50% applicable in 2013 and 2014)
    • Dividends: 25%
    • Capital gains: 0 – 25%
  • Social Security Contributions
    • Employer’s contributions: 16.1%
    • Employee’s contributions: 22.1%
  • Derivative Instruments Gains Tax
    • Regressive rates: 0 to 20%
    • Short term contracts: 40%
  • Real Estate Transfer Tax: 2%

Corporate tax
Tax basis
Taxable income is based on accounting profits as determined under IFRS or Slovenian accounting standards, with the taxpayer generally having the choice. Regardless of this choice, profits are adjusted for tax purposes in an identical manner. Generally speaking, only those expenses that are directly required for the generation of taxable revenues are allowed as deductible. Only 50% of entertainment expenses and fees paid to the supervisory board are deductible for tax purposes.
Tax rate
The standard corporate income tax rate is 17%. The corporate income tax rate for qualifying venture capital companies is 0%, subject to specific conditions. Investment funds that distribute 90% of their operating profits for the preceding tax year by 30 November of the current tax year are taxed at a rate of 0%. Pension funds established in accordance with the Pension and Disability Insurance Act are taxed at a rate of 0%.
Capital gains
50% of capital gains may be exempt from tax if certain conditions are met. Only 50% of capital losses are deductible. Venture capital companies can apply a full participation exemption to capital gains realised from the transfer of shares acquired through their venture capital investments, provided that certain conditions are met. Losses incurred on the transfer of shares acquired under a venture capital scheme are not deductible for tax purposes.
Participation exemption
Dividends received by Slovenian taxable persons are generally subject to a full participation exemption.
Thin capitalisation
Interest on loans from shareholders who, directly or indirectly, at any time during a tax year, hold at least 25% of the capital or voting rights of the taxable person (with the exception of banks and insurance companies as borrowers) is deductible only if it is attributable to the part of the loan that does not exceed the 4:1 debt/equity ratio. Interest paid in excess of this rate is regarded as a hidden profit distribution, which means that it is essentially re-characterised as dividend-like income.
Tax loss carried forward
Tax losses can be offset against taxable profits indefinitely in following years. If there is a change of ownership then some restrictions may apply.
Tax relief
Tax relief, by way of a reduction in the tax base, is available for:
  • up to 60% of R&D expenditure
  • up to 30% of expenses for investment in non-fixed assets and equipment
  • up to 45% of salaries for certain categories of employees and up to 100% of salaries where handicapped workers are employed
  • Other tax reliefs: training and further education of employees, donations, voluntary additional pension insurance

Withholding tax
Withholding tax applies to a number of payments, including dividends, interest, royalties and payments for services to black-listed countries. The statutory rate is 15%. The rate may be reduced by application of a double tax treaty or the relevant EU Directive.
Transfer pricing
Transfer prices are determined by reference to the market prices of the same or comparable goods or services as charged between unrelated parties (comparable market prices). Comparable market prices are determined by one of the methods provided by the OECD Transfer Pricing Guidelines. The arm’s length interest rate is calculated based on the Regulation on the Acknowledged Interest Rate and depends on the currency, maturity and credit rating of the related parties. Taxpayers must maintain transfer-pricing documentation on a continuous basis. A prescribed abstract of the documentation must be enclosed with the tax return when the return is filed with the tax authorities. The transfer pricing rules generally apply to cross-border transactions, but they can also apply to transactions between domestic related parties in specific circumstances.
Value Added Tax
The Slovenian VAT system is harmonised with the EU VAT Directives. There are two VAT rates applicable in Slovenia. The standard rate of 22% applies to all supplies of goods and services not specified as being subject to the reduced rate or exemptions.
The reduced rate of 9,5% applies to supplies of goods and services such as supplies of foodstuffs, supplies of water, supplies of medicines, passenger transport, admission to cultural and sporting events, royalties, renovation and repairing of private dwellings, hotel accommodation, etc.
Personal income Tax
Personal income tax applies to six categories of income: income from employment, business income, income from basic agriculture and forestry, rental income and royalties, income from capital (interest, dividends and capital gains) and other income. Dividends, interest and capital gains are taxed at a flat rate. Income tax on other categories of income is calculated using progressive rates.
Other important taxes
  • Property Tax: The tax rate for premises is set between 0.10% and 1.25%, depending on the type and value of the property.
  • Real Estate Transfer Tax: This tax is usually payable by the seller on transfer and is charged at a rate of 2% on the selling / market value of the real estate.
  • Contractual Work Tax: A tax of 25% is levied on each gross payment to individuals made pursuant to a contract for temporary work, save for certain exempt activities (e.g. care for the disabled).
  • Derivative Instruments Gains Tax: This tax is levied at regressive rates from 20% to 0%, depending on the period of holding. Gains realised on short-term contracts are taxed at 40%.

Double tax treaties
The double tax treaties concluded by Slovenia follow the OECD Model Tax Convention on Income and on Capital, with some modifications. Slovenia currently has double tax treaties in force with 50 countries.
Ukraine
General introduction
In 2010, the Ukraine Parliament codified all tax legislation by adopting the Tax Code of Ukraine (the “Tax Code”). As a result, a number of concepts which are common in other jurisdictions (for example: beneficial ownership and business purpose) have become part of Ukrainian tax legislation. In addition to codifying existing tax principles, the Tax Code introduced a new real estate tax.
The new Tax Code is different in its approach and generally more biased towards state revenue than the previous tax laws. Previous court decisions and clarifications from the tax authorities are not necessarily applicable to the new code.
Main taxes
  • Corporate income tax: 19% (16% from 1 January 2014)
  • VAT: 0%, 20% (17% from 1 January 2014)
  • Personal income tax: 5%, 15%, 17% (depending on income type and amount)
  • Excise tax: the rate depends on the type of excise goods
  • Natural resource charges: subsoil use charges, special purpose mark up for natural gas supplies
  • Land tax and real estate tax (rates vary depending on the designation and location of a land plot and total area of real estate objects)

Corporate Income Tax
As of 2013, the standard corporate income tax («CIT») rate under the Tax Code is 19%, which will be decreased to 16% by 2014. Notwithstanding the reduction from 25% in 2010 down to 16% by 2014, the actual tax burden on Ukrainian companies with foreign investments and Ukrainian businesses doing business with foreign partners may in fact increase.
CIT advance payments
In general, tax payers submit quarterly CIT returns, and make the corresponding payments within 50 calendar days of the end of the reporting quarter. However, with effect from 1 January 2013, monthly advance payments of CIT have been required from taxpayers (other than newly created companies, agricultural producers and non-profit institutions) whose income for the preceding year exceeded UAH 10 million (approx. EUR 0.9 million). If a taxpayer makes a loss during the first quarter of the reporting period, it may file a tax return supported by financial statements for the first quarter and will then be exempt from advance CIT payments during the second, third and fourth reporting quarters.
Restricted deductibility of fees for certain services and royalties
The deductibility of fees for consultancy, marketing and advertising services provided by a non-resident to a Ukrainian company is now limited to 4% of such company’s income for the preceding reporting year. The deductibility of expenses incurred in respect of engineering services provided by non-residents is also subject to a limitation, in this case 5% of the customs value of imported equipment to which the services relate. The deductibility of royalties paid by a Ukrainian company to a non-resident is now limited to 4% of the Ukrainian company’s income for the preceding reporting year, save for royalties paid by Ukrainian broadcasting companies and licences for foreign films and music and literary works. In addition to the above, royalties and expenses relating to certain services may be entirely non-deductible if, for instance, they are paid to offshore or non-taxable foreign entities, or someone other than the beneficial owner.
Restricted deductibility of interest on foreign shareholder loans
The interest paid by a Ukrainian borrower to its non-resident (direct or indirect) majority shareholder, or to such shareholder’s related parties, is subject to a temporary deductibility limit. The deduction made in respect of such interest may not exceed: (i) the amount of interest income received by the borrower from lending its own assets plus (ii) 50% of the taxable profit of the company for the reporting period (calculated without interest income). The disallowed balance can be carried forward by the borrower to the next reporting period subject to the same limitations. Interest in excess of the arm’s length rate is never deductible when paid to related parties.
Participation exemption rules
There are no participation exemption rules in Ukraine as such. However, whereas dividends are tax exempt when received by one Ukrainian CIT-paying company from another, the same dividends are taxable when received by a Ukrainian company from a non-resident company (save for dividends received from a non-offshore non-resident entity controlled by a Ukrainian company, which are also tax exempt).
Advance CIT on dividends by a Ukrainian company and exempt distributions
The Tax Code requires an advance payment of CIT, levied at a standard rate on the gross amount of dividends, to be made by the distributing company to the state treasury prior to or upon distribution. This advance payment is not a separate tax on dividends but constitutes a part of CIT that is paid in advance and can be offset by the distributing company against its CIT liability for the tax period during which the distribution is made. In practice, this advance CIT payment requirement could cause a cash flow shortage for the company, preventing it from making a full distribution of dividends to its shareholders. There are a number of circumstances in which the advance CIT requirement does not apply, including distribution to individuals, by real estate fund managers, by a holding company etc.
Tax loss carry forward
Carrying forward of tax losses is generally allowed in Ukraine. However, in 2012 the Ukrainian Parliament adopted special rules for carrying forward tax losses accumulated up to 1 January 2012. Under those rules, all pre-2012 tax losses were divided into 4 equal parts (25% each) to be used, in accordance with a specific procedure, in the four years from 2012 to 2015. Pre-2012 tax losses not used during that period will be available to be carried forward and deducted in subsequent tax periods without restrictions. There are also no restrictions regarding carry forward and deductibility of tax losses arising in 2012 or in subsequent tax periods.
Transfer pricing rules
There is a new transfer pricing (TP) regulation from 1 September 2013. The new TP rules apply to transactions which are known as controlled transactions (CTs). CTs are transactions involving Ukrainian corporations where the total transactions’ amount per counterparty per annum equals or exceeds UAH 50m (about EUR 4.8m) provided that such transactions involve any of the parties mentioned below:
  • a related non-resident party
  • any non-resident counterparty which resides in a country where the corporate income tax (CIT) (or effective tax) rate is at least 5% lower than in Ukraine
  • a related resident party which:
    • has reported tax losses for the previous fiscal year
    • uses the special tax regime (e.g., pays a simplified tax, fixed agriculture tax or subject to special surcharge on electricity and thermal power tariffs, and special surcharge on natural gas tariffs)
    • pays CIT and/or VAT at a non-regular tax rate (e.g. IT developers)
    • is not registered as a CIT and/or VAT payer (e.g. private entrepreneurs, non-for-profit organisations and, arguably, for-profit organisations in certain cases).


The new TP rules introduce a requirement of compulsory annual reporting by Ukrainian taxpayers on controlled transactions, which was not required before. The reporting period shall be a calendar year and the first report is to be filed with the tax authorities by 1 May 2014.
Value Added Tax
Ukraine uses the input-output model, which is very similar to the system used in the EU, where the government is paid the difference between VAT collected from buyers and VAT paid to suppliers. Transactions subject to VAT generally include supplies of goods or services in Ukraine (including those supplied free of charge), and imports and exports of goods, including ancillary services.
Non-taxable transactions include financial services transactions, insurance and reinsurance transactions, sales of shares, monetary contributions to charter capital, dividend distributions, royalty payments and supplies of plots of land (except those whose value includes buildings built on them).
VAT rate and taxable base
The standard tax rate of 20% (which will be reduced to only 17% in 2014) applies to all taxable transactions. Some transactions are zero-rated, such as exports of goods including ancillary services. The taxable base is generally the contractual price for supplies of goods or services but it cannot be less than fair market price.
VAT registration
A company must register as a VAT payer if its total revenues for the previous 12 calendar months from supplies subject to VAT exceed UAH 300,000 (approximately EUR 27,273). Below that threshold, voluntary VAT registration is possible provided that, prior to such registration, the taxpayer has entered into at least one VATable transaction.
VAT refund
A taxpayer is generally entitled to a VAT refund where its VAT output exceeds its input, but a number of legal and practical limitations and conditions apply to obtaining VAT refund. In practice, not all VAT payers may in fact receive a VAT refund, even where all formal legal requirements are met, due to the state treasury deficit. The Tax Code provides for an automatic cash VAT refund for eligible taxpayers (primarily exporters) under a less cumbersome and time-consuming procedure. However, in practice it is not an easy exercise to be added to the list of eligible taxpayers.The Tax Code provides for the government to pay interest on late VAT (at 120% of National Bank of Ukraine base rate). However, this penalty has not led the Government to comply fully with its statutory obligations regarding VAT refunds, and taxpayers usually apply to court to obtain such refunds.
Personal Income Tax
Ukrainian tax residents are subject to Personal income tax «PIT» on their worldwide income, whereas non-residents are only taxed on income originating from Ukraine. A residency test (based on the one used in the OECD Model Tax Convention) is used to determine a particular individual’s permanent place of residence and whether or not he/she is a Ukrainian tax resident.
For residents, a standard tax rate of 15% generally applies on income up to 10 times the official minimum wage (UAH 11,470 (approx. EUR 1,042)). Any income in excess of that amount is subject to tax at 17%. Certain types of income are subject to reduced tax rates. For example, a 5% rate applies to dividends, interest on bank deposits, interest on bonds, etc. However, certain types of income are subject to increased tax rates. For example, prizes and winnings are subject to 30% tax (except for the state lottery which is subject to the standard tax rate).
Income received by non-residents is generally subject to the same tax rates as above. However, a higher-than-usual tax rate may apply to income received by a non-resident from the sale of real estate in Ukraine. The “single social contribution” is a significant cost for employers and private businesses. This is calculated and collected separately from taxes and is formally outside the tax authorities’ remit. It is charged at a rate of 34.7% - 49.7% (depending on the business sector), but the amount on which this contribution is levied is currently capped at UAH 19,499 (approx. EUR 1,772).
Other Taxes
  • Real Estate Tax
    Since 1 January 2013, owners of apartments, including non-residents, have been obliged to pay real estate tax “RET”. However, tax exemptions are available to individuals. The tax rate depends on the residential floor area of the premises and is progressive at 1% and 2.7% of the minimum wage per sq. meter, respectively.
  • Land Tax
    Owners of land plots are subject to land tax. Land tax rates vary depending on the land plot, its location and characteristics.

Withholding Tax. Double Tax Treaties
The general withholding tax rate applicable to different types of Ukrainian sourced income is 15% (unless more favourable rates are provided for by an applicable double tax treaty). Ukraine is a party to 71 double tax treaties, which generally follow the OECD Model Tax Convention. In order to benefit from any applicable relief, non-residents should provide the Ukrainian taxpayer with an annual residency certificate as issued by the tax authorities of their country of residence.

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