2018 has been a turbulent year. European countries adopted quite a few tax reforms. The trend seems to continue in 2019. Below are the latest updates on European tax legislation necessary to prepare your finance and payroll departments for the year ahead.
As of 1 January 2019, the first part of EU Anti-Tax Avoidance Directive came into effect. ATAD1 contains five legally-binding anti-abuse measures, which all Member States should apply against common forms of aggressive tax planning. The act minimises protection against corporate tax avoidance throughout the EU, while ensuring a fairer environment for business.
Five minimum measures are:
1. Controlled Foreign Company Rule – prevents profit shifting to a low/no tax country.
2. Exit taxes – deters companies from avoiding tax when re-locating assets.
3. Hybrid mismatch rules – stops double non-taxation of certain income.
4. Interest deductibility limits – discourages artificial debt arrangements designated to reduce taxes.
5. General Anti-Abuse Rule – counteracts aggressive tax planning when other rules do not apply.
Personal Income Tax rates for 2019 are as following:
• 24% below 30.000 HRK
• 36% above 30.000 HRK
The new rates will significantly increase contributions for highly qualified professionals. However, there are tax exemptions in place. The non-taxable amount of 2.500 HRK per year is allocated for Christmas and vacations. Furthermore, there is a non-taxable bonus allowance for 5.000 HRK per year.
Salary health contributions have also increased, from 15% to 16.5%. Meanwhile, contributions for unemployment and safety at work have been cancelled.
On the other hand, there are some good news regarding VAT. Croatia’s general VAT tax rate has been reduced from 25% to 24%. Whilst VAT for livestock, meat, fish, fruits, nuts, vegetables and eggs has decreased from 25% to 13%. The reduction rate is set to increase annual disposable household income by an estimated average of 872 HRK.
The tax reform concerning overtime payment scheduled for September 2019 has now been moved to January 2019. From now on money earned by working overtime are tax exempt.
The income tax rate for corporations (except for credit institutions) has been reduced from 29% to 28% in 2019. It will continue to lower on a yearly basis, reaching 25% by 2022.
Personal income tax. The overall tax burden has increased from 34.22% to 34.5%. In addition to this, numerous benefits, such as voluntary fund contributions, local public season tickets, contribution to school costs, meals provided by canteens, will no longer be considered tax free.
Moreover, Hungary has implemented Group Corporation Tax in January 2019. From now onwards domestic corporate income taxpayers with at least 75% common direct or indirect ownership interest are able to offset losses at group level. They are also exempt from transfer pricing rules within the group.
Despite the protests, changes to 30% ruling have been implemented early January 2019. The period covered by the tax exemption has been reduced from eight to five years only. Terms and conditions apply depending on personal circumstances. For further details click here.
Withholding Income tax. The government introduced a new mechanism for the settlement of withholding tax for payments in excess of PLN 2m per annum, per taxpayer on 1 January 2019. First of all, the tax will be charged following the standard rates specified in the Corporate Income Tax Act. Secondly, the collection process is obligatory, with the possibility of reimbursement by the tax office on demand. There will be a six-month deadline for the refund with a possibility of an extension.
If you require more detailed information, or assistance with implementing any of the above developments in your business, get in touch with our experts today.