Deloitte: Romania faces growing fiscal competition as 8 EU member states cut corporate tax rates since 2017

Romania will be able to count less on the low taxation advantage in order to attract investments due to growing competition, after eight EU member states have reduced their corporate tax rates since 2017, according to a study released by Deloitte Romania.

“Even in the new context, the Romanian corporate tax rate remains among the lowest in the EU, ranking on the sixth position. However, Romania’s neighbors such as Hungary and Bulgaria have significantly lower rates, 9% and 10% respectively,” the study said.

Deloitte points out that 13 EU member states have cut their corporate tax rates since 2013, and eight countries – Belgium, Croatia, Hungary, Italy, Luxembourg, Poland, Slovakia, the United Kingdom – operated them in 2017-2018.

However, three member states have increased their corporate tax rates over the past five years: Greece in 2015, Slovenia in 2017, and Latvia in 2018.

“The trend is expected to continue in the upcoming years given the official statements of some EU countries, such as France, Poland or Belgium. In this context, it becomes obvious that Romania will be able to count less on the low taxation as a major stimulus to attract investors and will need to focus on other business-friendly policies such as legislative predictability and stability, red tape cutting, infrastructure development, and workforce training,” said Dan Badin, Partner-in-Charge, Deloitte Romania Tax and Legal Services.

The member states with the lowest corporate tax rates are: Hungary (9 percent), Bulgaria (10 percent), Ireland (12.5 percent), Cyprus (12.5 percent), Lithuania (15 percent), Poland (15 percent, but only for small businesses), and Romania (16 percent).

The member states with the highest corporate tax rates are: France (33.33 percent), Germany (about 30-33 percent: the total rate results from adding the national rate, the solidarity extra-tax and the municipal tax), and Belgium (29 percent).

“The main reason for cutting the corporate tax rates is the international competition to attract foreign investments. In this context, the reduction of the corporate tax rate from 35% to 21% in US may be considered as a turning point that led to similar measures in the EU member states faster than expected,” Badin added.