Hungary has the lowest small business tax burden in Europe!
Hungary has the lowest small business tax burden in Europe, and one of the lowest in the world, according to a new study from BusinessFinancing.co.uk. Researchers applied tax rates and rules from each country to a model company (with $1M in revenue, $100K profit, and 5-9 employees) to calculate how much tax that company would owe globally.
Corporate or corporation tax is a percentage of a company’s profits that it pays to the government. It is a major source of the cash that states and countries use to fund education, social services, defence, emergency units and much more.
However, corporate tax rates vary widely around the world and even within countries. For example, most American states charge a different local corporation tax on top of the federal rate of 21%. In the UK, the main rate is set at 25%, but small businesses with profits under £50,000 (US$38,550) pay just 19%.
The study
BusinessFinancing.co.uk applied tax rates and rules by country sourced from Deloitte and PricewaterhouseCoopers (PwC) to a model company with fixed parameters, including annual revenue of $1 million, profit of $100k and between five and nine employees. Using these parameters, they calculated the total amount of tax that would be paid by the model company in each country.
Hungary has the lowest small business tax burden
In Hungary, the model company would pay just $9,000 in corporate tax on $100,000 in profit: less than any other country in Europe. This places Hungary as one of the most tax-friendly nations for small businesses.
Important findings
- Guyana is the country with the highest tax rate for small businesses, with the model firm paying $40,000 on profits of $100,000.
- In the Bahamas, Bahrain and the United Arab Emirates, the model company would owe zero corporate tax on profits of $100,000.
Malta has the highest corporate tax rates in Europe for the hypothetical small business. The 35% rate on local businesses is particularly controversial since Malta offers rates as low as 5% for international companies, making it a tax haven or even a “pirate base for tax avoidance,” depending on your perspective.
In the UK, profits at this level are taxed at 22.75%, or $22,750 on profits of $100,000, due to the sliding scale on tax rates for companies with profits between £50,000 and £250,000.
The point of business tax
Many big businesses find ways to avoid paying their share of corporate tax, and smaller business owners may baulk at seeing their meagre profits dwindling at the end of the tax year. As such, the usefulness of business taxes like this is a matter of ongoing debate.
Studies have shown that temporarily cutting corporate income tax rates can boost innovation and productivity, and businesses may pass the cost of taxes on by underpaying workers while maintaining profit levels. However, a recent UK tax break designed by the Conservatives to boost corporate investment and productivity may cost the country £15-20 billion ($19.4–25.9 bn).
In the UK, corporate tax accounts for around 9% of all taxes that are collected, according to the government. No matter how this figures up against other countries, it reinforces the fact that tax on corporate profits is an essential way of providing for the way of life for nations as a whole.
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