Governments require businesses to remit various types of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es—one being labor taxes. Although labor taxes are generally not borne by businesses, they add to the administrative burden of complying with the tax system. Today’s map shows how complex—or easy—it is to remit labor taxes across Europe.
One way of measuring the administrative burden of labor taxes on businesses is to look at the number of hours it takes to comply. The time to comply indicator—measured in an annual study by the World Bank and PwC—reflects the average number of hours it takes a domestic medium-size business per year to prepare, file, and pay labor taxes (including payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es and social contributions).
Luxembourg’s labor tax compliance requires the least amount of time of all European countries, at 14 hours, followed by Norway, at 15 hours. The administrative burden is highest in Bulgaria and Italy, where businesses need 250 hours and 169 hours a year to comply with labor taxes, respectively.
Another indicator of labor tax complexity is the number of separate labor tax payments a business is required to make every year. This indicator also accounts for easier compliance through electronic filing. When a labor tax is paid and filed online by the majority of medium-size businesses, only one payment is included in the indicator (even if payments are made more frequently).
|Country||Hours Needed to Comply with Labor Taxes per Year||Number of Labor Tax Payments per Year|
|Bosnia and Herzegovina (BA)||81||1|
|Czech Republic (CZ)||75||2|
|North Macedonia (MK)||56||1|
|San Marino (SM)||48||12|
|Slovak Republic (SK)||62||1|
|United Kingdom (GB)||57||2|
Source: PwC, “Paying Taxes 2020,” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020.html.
While Estonia’s labor tax payments are automated, most European countries file labor taxes either once or twice every year. Businesses in Iceland and Montenegro are required to make the highest number of labor tax payments, at 13 payments.
Both measures—compliance time and payments—indicate that in some European countries businesses face relatively complex tax codes. In the case of labor taxes, however, this is only part of the total administrative burden. Adding the time individuals invest in preparing, filing, and paying their individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. es and social contributions would increase many countries’ labor tax compliance measures substantially.
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