11 Countries. 11 Tax Systems.

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1. Albania

1.1. Personal Income Taxation

Dividends, income from profits of a partner, either a single partner, interest on loans, deposits or similar contracts, revenues from the copyright or intellectual property, the income from gambling, and all bonuses or other revenues that are not otherwise specified in other provisions of this law are taxed at 15 % instead of 10 %.

Capital gains from the transfer of the right of ownership on real estate and land buildings are taxed at 15 % of the profits realized instead of 10 %.

The contribution made by each member of a voluntary pension fund to the extent determined by the law on voluntary pension funds and contributions made by the employer or any other contributor, in the name of and for the account of a member of the voluntary pension fund are tax exempt.

Returns on investments, including capital gains from investments made by the pension fund assets are also tax exempt.

11 Countries. 11 Tax Systems.

The year 2015 also brings extensive changes in the areas of taxes, duties and social

contributions in all CEE and SEE countries. This special newsletter covers essential changes in effect as of 2015.

TPA Horwath offers an overview of the most important tax innovations in the following CEE and SEE countries in which we operate:

1. Albania ...1 2. Austria ...2 3. Bulgaria ...3 4. Croatia ...4 5. Czech Republic ...4 6. Hungary ...5 7. Poland ...6 8. Romania ...7 9. Serbia ...8 10. Slovakia ...8 11. Slovenia ...9

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1.2. Corporate Income Taxation

Expenditures for contributions made by the employer on behalf of its employees in a professional pension plan up to 350,000 Leke per annum per each employee are considered a tax deductible expense. Voluntary pension funds managed by management company of voluntary pension funds are exempt from CIT.

Costs of purchase or construction, the costs of upgrading, renovation and reconstruction of buildings, construction and machinery and equipment with long useful life are depreciated with declining balance method at a rate of 5 % on net book value. If the carrying value of the asset at the beginning of the tax period is less than 3 % of the historical cost, then this residual value will be recognized as a fully deductible expense of the tax period.

The two categories below are depreciated with declining balance method on a grouping system with the rates of:

25 % for computers, information systems, “software” products, and data storage systems

20 % for all other assets.

In case the carrying value of the asset at the beginning of the tax period is less than 10 % of historical cost, then this residual value will be recognized as a fully deductible expense of the tax period.

1.3. Withholding Tax

All persons resident in the Republic of Albania, central government agencies, local non-profit organizations and any other entity, known by the legislation, are subject to withholding tax at the rate of 15 % of the gross amount payments arising from an income source in the Republic of Albania.

1.4. VAT

Insurance Written Premiums have become VAT exempt.

2. Austria

2.1. VAT

As of 1 January 2015 telecommunications, radio and TV services are taxable where the recipient is situated. A „Mini One Stop Shop“, the so-called MOSS, has been introduced so that the supplier can declare and pay VAT in the country where he is established/resident instead of registering in all countries of residence of his customers.

2.2. Tax Reform 2015

In the following, we would like to present a selected overview of the changes that will be brought about by the Tax Reform 2015/2016. As a rule, the changes will first come into effect in 2016.

Income Taxation of Individual Persons

Reduction of the first income tax rate to 25 %

Temporary increase of the top income tax rate to 55 % (for an income greater than EUR 1 Mio)

Increase of the capital gains tax and the special tax rate for (most) capital income from 25 % to 27.5 %, with the exception of, in particular, savings books and current accounts; the capital gains tax for legal entities remains at 25 %

Increase of the real estate income tax to 30 %, the real estate income tax for legal entities remains at 25 %

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Property Transfer Tax

Free transfers within the family unit are no longer to be calculated from the assessed value, but from a special value derived from the market value.

The tax rate for free transfers is to be staggered subject to the value: up to EUR 250,000 0.5 %, up to EUR 400,000 2 % and above this: 3.5 %.

Transfers within the family are always free of charge, also when the assignment is made against a life annuity or a lifelong right of residence.

Business transfers and legacies of joint (marital) partner dwellings are particularly favoured. Viewing of Bank Accounts and End of Banking Secrecy

In the future, Austrian banks have to provide information about Austrian bank accounts to tax authorities in certain cases. This regulation came into force as of 1 March 2015.

3. Bulgaria

3.1. Corporate Income Taxation

As of 1 January 2015 Bulgaria has implemented changes in the Corporate Income Tax Act leading to withholding tax exemption of interest and royalty incomes accrued in favor of related companies

established in another member state or to a permanent establishment of EU companies in another member state. The changes are related to the expiry of the transitional period arrangement between Bulgaria and the EU for applying the provisions of the EC Interest and Royalty Directive which allowed Bulgaria to charge 5 % tax on such income until 31 December 2014.

The withholding tax exemptions are subject to certain preconditions stated in full in Art.195 of CITA, among which:

The legal form of the EU established beneficiary of the income shall be as per the list of Appendix 5 of CITA (generally covering legal forms of Joint Stock Company and Limited Liability Company).

Uninterrupted shareholding of not less than 25% of the shares of the related company

Beneficial ownership of the income (intermediary companies or agents are excluded) 3.2. VAT

The common system of value added tax Directive, the common basis of VAT in all EU countries, was changed from 1 January 2015.

Changes were made to the provisions on the place of performance for electronically provided services as well as telecommunications, and broadcasting services which were provided by a company based in the EU to a company not subject to tax, which is not located within the EU.

In addition the place of performance for telecommunications, broadcasting and electronic services which are provided by companies not established in the Community to companies not subject to tax in the Community was changed.

From 1 January 2015 all these services will be brought at the place of residence, establishment or habitual residence of the service recipient. In order to make it easier for companies which provide these services in member states in which they are not established, a central contact point for tax declarations and payments has been established, (MOSS – Mini One Stop Shop).

A company has to register only once in the EU and can then fulfill all its obligations for all EU member states in which such services are provided, including declarations and payments.

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4. Croatia

4.1. Income Tax/Corporate Income Tax

Companies which underlie corporate income tax can reduce their tax base by the amount of reinvested profits if

they are used to increase the registered share capital and

investments took place in long-term assets planning to preserve existing working positions; the working positions must be maintained for at least two years

4.2. Withholding Tax

Withholding tax for individual persons has been reduced from 40 % to 12 % for interest payments. 4.3. VAT

As of 1 January 2015, a reverse charge regime on local supplies has been implemented that is applicable:

For all supplies of goods and services performed by a non-established taxpayer to a local taxpayer

For contraction work and services performed by a local taxpayer to another local taxpayer

For sale of property (construction land and buildings with the associated land) which is subject to VAT Furthermore, as of 1 January 2015 the supply of construction land is subject to VAT. Also “new” real estate, i.e. buildings and associated land which are not used within 2 years from the date of acquisition or

construction, underlie VAT at 25 %.

In addition the place of performance for telecommunications, broadcasting and electronic services which are provided by companies not established in the Community to companies not subject to tax in the Community was changed (see details, in particular relating to MOSS in Bulgaria, supra).

The annual sales tax returns only have to be submitted for 2014. 4.4. Other

A further type of company has been introduced: a “simple limited liability company” which has a minimum capital of HRK 10 (EUR 1.3) and can be founded as a sole shareholder company.

5. Czech Republic

5.1. Income Tax

Starting 1 January 2015 there are some changes in connection with personal income tax in the Czech Republic. In the following the main changes are mentioned:

Granting of a tax deductible amount for taxpayers receiving an old age pension.

Increase of tax deduction for the second and every other child.

Implementation of a tax deductible amount for placement of a child in a nursery in the amount of real costs with the maximum amount of CZK 9,200 (EUR 332).

Change in taxation for a non-resident general manager of Czech companies (s.r.o.): subject to

withholding tax of 15 % without any solidary increase resp. 35 % for the residents of states without DTT or TIEAs.

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5.2. Corporate Income Tax

Starting 1 January 2015 only certain funds, so-called basic investment funds, are subject to a special 5 % corporate income tax rate. The funds that do not fulfil the requirements for basic investment funds are taxed at the standard income tax rate of 19 %.

The basic investment funds are:

Investment funds are publicly traded on a European regulated market,

Open-ended funds,

Investment funds and subfunds of SICAVs investing at least 90% of their assets in financial instruments,

Comparable foreign funds. 5.3. VAT

The second reduced VAT rate of 10 % (in addition to the standard VAT rate of 21 % and the reduced VAT rate of 15 %) is introduced as of 1 January 2015 for supplies of books, certain types of medication, certain types of child nutrition and certain types of wheat products used for production of food suitable for people with celiac diseases.

The local reverse-charge regime is newly applied for supplies of goods listed in Government regulation. The regulation includes supplies of metals, cereals and industrial crops, mobile telephones, integrated circuits, tablets and video game consoles (from 1 April 2015) and sugarcane (from 1 September 2015) if the total tax base amount stated in the tax document exceeds CZK 100,000 (EUR 3,607).

As of 1 January 2015, the place of supply in cases of telecommunication services, broadcasting services and services supplied electronically which are provided to a non-business customer is taxable at the place where the customer resides. With regards to this change a “mini one stop shop” has been introduced. The provider of the above services may choose to declare and pay VAT in the country of its seat instead of registering in all the countries where its customers reside.

Further changes in VAT relate to the sale of real estate as the VAT Act newly includes a definition of

“functional unit”. These may have a material impact on some VAT payers, such as developers of real estate, as more plots can be taxed with VAT than previously.

6. Hungary

As of 2015 companies and persons are seen as being associated if the same persons participate in the management and therefore influence decisions on corporate and financial policy.

If the profit or calculated tax base does not reach the minimum base and no voluntary declaration is sent to the financial authorities, a minimum tax has to be paid. For calculating the amount of minimum tax,

purchased goods/services can no longer be deducted from revenues.

As of 2015 losses can only be carried forward for a maximum of 5 years. Losses that have occurred until 2014 can be carried forward until 2025.

6.2. VAT

Currently, the VAT liability for services, whose settlement takes place as agreed on maturity at the end of periods (such as rental, consulting) occurs on the day of maturity of the consideration. As of now, the last day of the period will be relevant. However, if

the date of the invoice results in an earlier VAT liability, the earlier date is relevant

the maturity of the consideration results in a later VAT liability, the date of maturity is relevant, but not later than 30 days after the last day of the period

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6.3. Other

In order to combat VAT-fraud, an electronic system for the control of the transport of goods in road traffic (EKAER) has been implemented as of 1 January 2015. The EKAER is applicable for transportation of goods in road traffic from other EU-countries to Hungary, from Hungary to other EU-countries or within Hungary. As of 1 January 2015 the following transports with vehicles subject to toll (above 3.5 tons) can only be done with a valid EKAER-number:

Products or supplies for other purposes from the EU to Hungary

Supplies of products or supplies for other purposes from Hungary to the EU

First VAT-able supply of products to non-final customers in Hungary

Taxpayers have to register electronically at the tax authorities, which assign a separate EKAER-number for each registration (transport). The EKAER-number is valid for 15 days.In case there is no EKAER-number, the tax authorities can impose a penalty of 40 % of the value of transported goods and seize the goods.

7. Poland

7.1. Corporate Income Tax/Personal Income Tax Transfer pricing documentation obligations are extended on

transactions between a parent company and its permanent establishment exceeding current thresholds (depending on the type of transaction EUR 30,000, EUR 50,000 or EUR 100,000) and on

conclusion of the partnership agreement, which establishes an entity without legal personality, provided that the total value of contributions exceeds the equivalent of EUR 50,000 and on

joint venture agreements, if the planned venture value exceeds the equivalent of EUR 50,000. In order to limit the diversion of income to countries with a preferential tax regime and to tax business income generated in Poland and diverted abroad, the controlled foreign company regime (CFC) was introduced. CFC rules provide for taxation in Poland of passive foreign income earned by the controlled foreign company. Subsidiaries subject to CFC rules are those with passive income taxed at a rate lower than 14.25% and in which the Polish parent holds at least 25% of shares directly or indirectly. Subsidiaries in tax havens will also be treated as CFCs. The CFC provisions will not apply if the foreign corporation conducts real (non-passive) business activities.

In reference to the thin capitalization rules, the most important changes include:

modification of the current debt-to equity ratio from 3:1 to 1:1;

broadening of the term qualifying equity (it shall include all own capitals, e.g. supplementary capital);

extension of the group of borrowers qualified to thin capitalization purposes to indirect relationships and

introduction of an alternative method of determination of the limit of interest being tax-deductible (if chosen it applies to all loans and credits, also from non-related parties).

Tax exemption for dividends and other income from share in profits of legal persons shall not apply in the case where amounts paid out are tax deductible costs, deducted from its tax base or from the amount of income tax.

Undivided (accumulated) profits become taxable in the event of the transformation of a company into a partnership; tax will be due on the company’s profits, which were not paid out to its shareholders, including the ones which increased capital (funds) of the company other than the share capital.

As of 1 January, 2015, an obligation to recognize a taxable revenue arises at the level of taxpayer who, through a benefit in kind, satisfies fully or in part his liability arising from a loan, a due dividend, redemption

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of shares within the exchange of shares constitute tax deductible costs in case of redemption of shares acquired through exchange of shares.

7.2. VAT

8. Romania

8.1. VAT

The types of accommodation for which the lower rate of VAT of 9 % rate is applicable have been extended starting January 2015. Consequently, the special VAT regime applies to all accommodation services where meals are included in the total price charged (e.g. “bed and breakfast”, “all inclusive”, etc.). Previously, the law only stipulated accommodation including breakfast.

In addition, starting 1 June 2015, a reduced rate of VAT of 9 % is applicable to the following supplies:

Food and beverages (with the exception of alcohol) intended for human and animal consumption

Live domestic animals and birds

Seeds, plants, food supplements and other ingredients used in the preparation of food

Restaurant and catering services (with the exception of alcoholic beverages)

8.2. Tax on constructions

As of January 2015, the rate of tax on constructions has been reduced from its initial level of 1.5 % to 1 % of the value recorded in the debit balance of the construction accounts at the end of the previous year.

The following exemptions from this tax (in addition to those applicable in 2014) have been added to the Fiscal Code:

The value of buildings located in industrial, science or technology parks that are not exempt from the local tax on buildings

The value of constructions located outside Romania, including constructions situated in Romania’s contiguous and exclusive economic zone, which are used for activities such as the exploration and exploitation of natural resources (in line with the United Nations Convention on the Law of the Sea)

The value of certain constructions owned by the state (publicly or privately) or owned by sports institutions.

8.3. Social contributions

In January 2015 the minimum gross salary was increased to RON 975 per month for a full-time work schedule of around 169 hours a month. As of 1 July 2015, this minimum gross will rise further to RON 1,050 a month. Also, the average gross salary increased to RON 2,415 in January 2015.

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9. Serbia

9.1. Personal Income Tax

Individuals whose annual income in Serbia in 2014, exceeded three average annual salaries, as

per official statistics, will be obliged to report and pay annual personal income tax, taxed with progressive tax rates (10 % and 15 %) by 15 May 2015.

Expenditures for humanitarian aid, more specifically, expenses regarding elimination of consequences incurred in case of an emergency, that are made to an autonomous province or to the unit of local govern-ment of the Republic of Serbia are deductible for CIT purposes to a maximum of 5 % of total revenues. 9.3. Transfer Pricing

A simplified transfer pricing documentation file can be submitted to the Tax Authority, if one of the two following conditions are fulfilled:

A specific related party transaction is regarded to be a one-off transaction and does not exceed RSD 8 million in total, in a fiscal year (approx EUR 66,000); or

The total value of all transactions with a specific related party during a fiscal year does not exceed RSD 8 million (approx EUR 66,000).

Additionally, transfer pricing rules shall not apply to entities that are connected via the Republic of Serbia, an autonomous province or local government unit (there will be no liability to prepare a transfer pricing study in accordance with the law).

9.4. Tax Procedure and Tax Administration

Electronical filing of tax returns is being introduced in accordance with the following timetable:

Corporate income tax return – starting from 1 April 2015;

Excise duties and tax returns of income generated by sole proprietorship – starting from 1 January 2016;

Annual personal income tax returns – starting from 1 April 2015;

Other tax returns – starting from 1 January 2017.

Provisions regarding the collection of tax debts have been changed i.e. the collection shall be exercised in the following order now: cost of tax debt collection, penalty interest and principal tax liability.

Higher penalty provisions have been introduced for both legal entities and responsible persons of such entities that fail to comply with tax legislation.

10. Slovakia

10.1. Corporate Income Tax/Personal Income Tax

The Slovak Republic implemented a “thin capitalization” rule on 1 January 2015. In accordance with this new rule, interest on loans from related parties will be recognized as tax deductible expenses only up to a limited amount of a maximum of 25 % of EBITDA. This rule does not only relate to foreign related parties, but also to domestic related parties. However, banks as well as insurance and leasing companies are excluded from this rule.

Payment as a requirement for deductibility

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also affect already depreciated assets. Administrative buildings, hotels and residential buildings will be depreciated over 40 years.

In addition, the accelerated depreciation method is limited to properties classified in the 2nd and 3rd depreciation group and the advantageous leasing depreciation is repealed.

Last but not least, the loss from sales of buildings and structures classified in the 6th depreciation group (administration buildings, residential buildings, hotels) and personal cars is no longer tax-deductible. Transfer Pricing

Since 1 January 2015 the transfer pricing documentation is not only applicable to foreign related parties but also to domestic related parties.

New prohibitions on deductions

The provisions to unbilled supplies and services, preparation, verifications and publication of financial statements and annual reports and costs for preparing of tax returns will no longer be taxable expenses. Contractual penalties, late fees and interest on late payments will not be a taxable expense for the payer, but on the other hand the recipient will nevertheless be obliged to pay tax on such income.

10.2. VAT

The common system of value added tax Directive, the common basis of VAT in all EU countries, was changed from 1 January 2015.

Changes were made to the provisions on the place of performance for electronically provided services as well as telecommunications, and broadcasting services which were provided by a company based in the EU to a company not subject to tax, which is located within the EU.

In addition the place of performance for telecommunications, broadcasting and electronic services which are provided by companies not established in the Community to companies not subject to tax in the Community was changed.

From 1 January 2015 all these services will be brought at the place of residence, establishment or habitual residence of the service recipient. In order to make it easier for companies which provide these services in member states in which they are not established, a central contact point for tax declarations and payments has been established, (MOSS – Mini One Stop Shop).

A company has to register only once in the EU and can then fulfill all its obligations for all EU member states in which such services are provided, including declarations and payments.

11. Slovenia

11.1. Income Tax

Because the tax rate is no longer adjusted for inflation automatically, the tax rates remain the same – just as in 2014.

The 50 % tax rate for income over EUR 70,907.20 is now a fixed component of the tax rate.

The regulations for flat-rate expenses for business incomes with yearly revenues up to EUR 50,000 have changed as follows: the flat-rate expenses amount to 80 % of revenues. The yearly turnover can be up to EUR 100,000 if one full-time employee is engaged for at least 5 months. Income calculated by using the flat rate option is taxed at 20 %, discharging the tax liability in full. Not only realized income is subject to taxation, but also billed revenues.

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The reduction of CIT to 15 % until 2015, which was decided in summer 2012, was stopped at 17 % in 2013. Therefore the CIT rate is still 17 %.

The regulations for flat-rate expenses as described above are also applicable CIT. 11.3. Other

The minimum compensation is still EUR 789.15

The contribution ceiling for self-employed persons is EUR 5,390.88 per month. The contributions amount to 38.2%. There is no contribution ceiling for employed persons.

Insurance tax was increased from 6.5% to 8.5%. Analogically tax on financial services was also increased to 8.5%.

Billing to public corporations has to be carried out via e-invoices.

Vouchers for pension or health insurance for people working in housekeeping or small cabaret/craftwork occasionally have been introduced.

Student work has been included in pension and health insurance.

Certain invoice blocks that are approved by the tax authorities have to be used for cash invoices as of 31 January 2015.

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Robert Lovrecki

Tax Advisor, Partner

Tel: +43 316 83 31 68-0, Fax ext: 4003 E-Mail: [email protected] TPA Horwath

Hartenaugasse 6a, 8010 Graz

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