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Taxation and SMEs

Taxation and SMEs

Most EU SMEs consider taxation matters to be the most burdensome policy area that affects them. The Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs carries out studies and projects in the field of SME taxation to find out how their tax situation could be improved.

While large enterprises can usually call on tax experts for advice on how to optimise their net profits, SMEs have many difficulties regarding tax matters, for example:

  • indirect taxation (VAT)
  • direct taxation (income, capital, double taxation etc.)
  • tax compliance costs; the administrative burden that arises from tax rules.

Studies and projects

Study: Tax compliance costs for SMEs

The main objectives of the study are:

  • To get a better understanding of how the need to cope with separate tax systems in EU countries impacts enterprises, in particular their compliance costs and their decision making
  • To quantify the tax compliance costs of enterprises, SMEs in particular, and to analyse how they differ with regard to different enterprise sizes and sectors in the non-financial business economy at national and EU levels.

The study shall draw conclusions and present recommendations on how the competitive situation of SMEs could be improved with regard to administrative costs, in particular the tax compliance costs that SMEs face.

The study will be published at the end of 2017.

Study: SME taxation in Europe – An empirical study of applied corporate income taxation for SMEs compared to large enterprises (2015)

This report analyses tax incentives for SMEs in 20 EU countries and five non-EU countries between 2009 and 2013. Its findings and recommendations are based on a comprehensive review of tax codes, modelling of tax burdens using two different models, a descriptive analysis of company financial ratios, and the perceptions of tax advisers and companies in each country.

Study of applied corporate income taxation for SMEs compared to large enterprises

Study: Effects of tax systems on the retention of earnings and the increase of own equity (2008)

The study focuses on tax systems and regulations, and their impact on business owners’ decisions to retain earnings or distribute profits. Tax systems in 19 countries are presented and analysed. The perceptions that businesses have of these tax systems are examined. To evaluate their impact three indicators are used: taxation itself and its aims; business owner understanding and perception of taxation; and the evolution of equity situations among businesses in the 19 target countries as a possible sign of taxation influencing businesses.

Study on effects of tax systems on the retention of earnings and increase of own equity

Project: Simplified tax compliance procedures for SMEs (2007)

Compliance with tax rules can be challenging for small businesses. Tax legislation is often complex and drafted in a way that allows their application to businesses of all sizes, even for operations that are only carried out by large corporations.

This project looked at the various measures that the participating countries have taken to reduce tax compliance costs for SMEs. Its aim was to facilitate an exchange of best practice between countries and to support the distribution of tested methods to improve the business environment for European SMEs. The report concentrates on income taxes (personal and corporate) and payroll taxes (wage taxes). Value added tax is not included.

Final report: Simplified tax compliance procedures for SMEs

For more information about these studies and projects contact:

European Commission
Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs
Unit H3 COSME Financial Instruments
B - 1049 Brussels

Email: GROW-H3@ec.europa.eu

Other Commission services working in this field

The Directorate-General for Taxation and Customs Union