Unutarnje tržište, industrija, poduzetništvo te mali i srednji poduzetnici

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 (2018)

The study looks into the tax compliance costs of enterprises and SMEs in particular. It analyses how costs differ throughout Europe by company size and sector. How do European SMEs cope with different tax systems? How do these differences affect SMEs' costs and decision making? How could the competitiveness of SMEs be improved with regard to the administrative burden?

SMEs face proportionally higher tax compliance costs than larger enterprises. The study suggests potential improvements at national and EU level. The findings are underpinned by extensive quantitative and qualitative research. This data shows how the major taxes (notably corporate income tax, value-added tax and payroll taxes) impose many obligations. SMEs often struggle limited internal resources and seek more costly outsourcing. 

The study, that covers 20 countries, draws attention to the differing national tax requirements which can create hurdles to cross-border activities in the Internal Market. SMEs are least equipped to handle these challenges. In its recommendations, the study looks first at measures at EU level. It then identifies how individual countries can encourage SMEs by making it easier and less costly to manage their tax obligations. The study also highlights good practices in several EU countries.

Study on on tax compliance costs for SMEs 
Info leaflet on the study

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