TAX BURDEN FROM INCOME TAX IN CONDITIONS OF NATIONAL BUSINESS RELOCATION
[2. Економічні науки]
Автор: Yulianna Perepelytsia, 657oo gr. master, National Aerospace University named after N. E. Zhukovsky "Kharkiv Aviation Institute"; Natalia B. Zjubanova, senior lecturer of Foreign Languages Department, National Aerospace University named after N. E. Zhukovsky "Kharkiv Aviation Institute", Kharkiv, Ukraine
The process of national economy in modern conditions of war is intertwined with certain organizational problems, lack of economic and political stability, and the potential threat of demographic crisis. Entrepreneurs strive to maintain and develop their businesses in Ukraine, but in today's conditions, not everyone succeeds. The impossibility of continuing business activities in some regions of our country forces a large number of entrepreneurs to consider relocating their businesses to safer territories including abroad. Today "business relocation" is a widespread concept and its application is a possible option for preserving national business.
The economic and political stability of the country, its position on the world stage, and the ability to provide guarantees of security for foreign investors' businesses are the first things that businessmen pay attention to when choosing a country for relocation. It is obvious that the choice of the owner will fall on European countries (especially Western European), as these states can provide what they feel Ukrainian entrepreneurs urgently need - economic and political stability and guarantees security for business. Among such countries are Italy, France, Germany, the United Kingdom, the United States, the Netherlands, Austria, and others.
In addition, an entrepreneur needs to assess another essential element of business development in terms of conducting financial transactions, namely the availability of banking services and the ability to use bank accounts without obstacles. After analyzing the banking system of potential countries for relocation, the entrepreneur must determine the most advantageous country from the perspective of business formation and development. The main criterion for such selection is the level of tax burden that will apply in the country chosen for relocation. The level of tax burden is determined by the jurisdiction of the country. An entrepreneur can compare the potential level of tax burden abroad with the actual one that operated in Ukraine. It should be noted that when determining the tax burden, a business owner needs to assess the burden from the following taxes:
– income tax (which needs to be paid by the employer for each employee);
– repatriation tax (arising when profits are paid to the enterprise's participant);
– value-added tax (VAT) and mechanisms for its refund;
– local taxes (land tax, property tax, etc.).
In particular, the basis for calculating income tax is the minimum wage (hereinafter - MW) fixed at the legislative level. Since the MW in European countries is much higher than in Ukraine, the employer's expenses will also increase (including taxes on wages). Each European Union country has its own thresholds for determining the MW (Table 1), so the level of tax burden plays a key role in assessing potential business expenses.
Table 1 – The level of MW and tax assessment of some European countries and Ukraine at the end of 2022, euros
Developed by authors based on sources: .
It is worth emphasizing that when comparing the tax burden in different countries around the world, it is important to consider not only its value but also the share of taxes that is returned to the population through income redistribution by the budget. For example, in European countries, this share of redistributed income is about 75% , while in Ukraine, it does not exceed 30%. Therefore, when evaluating tax rates, it is important for entrepreneurs to take into account the share of tax deductions that the entrepreneur will receive as an individual taxpayer and as an employer.
From the perspective of corporate income taxation, all jurisdictions that may interest a business owner can be divided into groups (Figure 1).
Figure 1 – European jurisdictions on income tax burden in 2022
Developed by authors based on sources: .
It is worth noting that despite the attractiveness of European jurisdictions, each of them has its own nuances, namely:
– countries in group №1 – as soon as profit is paid in the form of dividends to the participant, the profit is subject to taxation on general grounds;
– countries in group №2 – profit is regulated by expenses (the more expenses, the less tax), so if the company's expenses are low, the tax burden can be quite significant;
– countries in group №3 – a guarantee of full confidentiality of tax information and the possibility to obtain a tax residency certificate in the UAE (does not require continuous presence of a person in the country for 183 days).
Therefore, it can be determined that the most important stage for identifying the level of tax burden from corporate income tax in the conditions of relocation of national business abroad is the choice of jurisdiction of the country, as this process takes into account the specific conditions of the business activities of the "relocated" Ukrainian business owner and determines the potentially possible level of tax burden in the future.
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