Deloitte European Salary Survey: Sweden, Belgium and the Netherlands, at the top of the pyramid of the tax systems

• Deloitte European Salary Survey: Sweden, Belgium and the Netherlands, at the top of the pyramid of the tax systems
• Romania maintains its flat tax advantage, but significantly loses attractiveness when it comes to social security contributions 

 Deloitte has recently published the second edition of its annual European Salary Survey, which analyzes salary costs throughout 11 states in the European Union. The study makes an assessment of the tax regime applicable to salary income and provides also a tax efficiency ranking within the present economic environment.

The survey has been conducted by the Deloitte office in Brussels, and analyzes tax systems in countries from Western Europe (Belgium, Germany, France, the Netherlands, Ireland, and the United Kingdom), Southern and Northern Europe (Italy, Spain, Sweden) and 2 countries in Central Europe (the Czech Republic and Poland).   

The study is based on a comparison of three components - net salary, employer cost and the ratio between the net salary and the employer cost, starting from the same gross salary paid to the employee; the calculations are also made considering several scenarios (non-married employee, employee married having two children, etc).

Deloitte specialists' analysis underlines the salary costs for each category of employee - i.e. white collar/blue collar. 

Belgium is ranked first in the category employment costs for blue collars workers, closely followed by France; nevertheless, Belgium also ranks first in the category highest net salary among the Western European countries. 

When it comes to white collars workers, the situation is totally different: as the gross salary increases, the tax burden also increases, causing Belgium to fall on the last place in the ranking regarding net salary levels. 

A surprising result is that in most states the tax burden increases significantly for non-married employees compared to those married and having two children, the difference in net salary arising to 4,000 Euro per year in Belgium. There are differences in net salary between the two scenarios (married and non-married) in the other European states as well, however, in Sweden and the United Kingdom such tax treatment differences do not apply, the only criterion being the level of the gross salary.

 When it comes to classifying based on the tax rate level, Sweden ranks first, with a marginal income tax rate of 57%, applicable to salary income which exceeds 58,755.42 Euro per year; Belgium and the Netherlands come on the second and third place, with marginal rates of 53.5%, and 52% respectively, while on the last place there stands the Czech Republic, with a flat tax rate of 15% applicable to salary income.

Also, in what regards the assessment of the cost of living, Poland and the Czech Republic are considered to be the cheapest countries among those analyzed, while the Netherlands, the United Kingdom and France are the most expensive in what regards the cost of living.

Romania, between the advantage of the flat tax and the burden of social contributions

In a comparative analysis, Romania still maintains its flat tax advantage against Western countries in Europe, in what regards the labor cost. However, Romania is currently uncompetitive in terms of social contributions costs, which are still higher than those in neighboring states. 

"Within the context of high social contributions costs, we can say that Romania remains attractive mostly for highly remunerated workforce, meaning people who derive gross salaries of over 50.000 per year Euro, and this is only due to the cap applicable on the pension contribution. However, for those with low or average income we cannot say the same thing, as the burden of social contributions is being significantly resented in the employers' pocket,” says Raluca Bontas, Senior Manager at Deloitte Tax. 

In addition, Romania remains an attractive country for expatriates who settle here, both from an income tax and living cost perspectives. 

Starting this year, the taxation regime in Romania could become more convenient for expatriates not only from a salary tax perspective, but also in what regards other types of income that the individuals could derive; following recent tax law modifications, foreign individuals who settle here will be liable to declare their worldwide income in Romania starting with the second year of tax residency (previously, this was only possible after their third year of stay here). 

"In the case of foreign nationals who settle in Romania, even for a temporary period, the right for taxation of their income could be allocated to Romania, under certain circumstances. In practice, this would mean on one side that foreigners would benefit from a tax of 16%, which is in most cases more favorable than the tax applicable in other countries where authorities apply a progressive tax rate (which could rise up to 50%) and on the other side that the Romanian authorities could collect more money to the budget. A next necessary step for the proper administration and collection of these revenues will have to be the debureaucratization of the tax returns filing procedures, which will ensure a higher degree of voluntary compliance,” says Raluca Bontas.  

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