How Corporate Income Tax Is Determined and How It Can Be Reduced

Corporate income tax is often perceived as an unavoidable obligation that arises at the end of the financial year. However, its amount is not predetermined—it largely depends on how a business manages its revenues, expenses, and overall operations throughout the year.

For this reason, corporate income tax should be viewed as the result of business decisions rather than merely an accounting category. Timely planning and a clear understanding of tax regulations can significantly reduce the tax base without negatively impacting business performance.

How the Tax Base Is Determined

The tax base is calculated as the difference between revenues and expenses, adjusted in accordance with the Corporate Income Tax Act. The applicable tax rates depend on the level of generated revenue.

Two tax rates apply:
– 10% for companies with revenue up to EUR 1,000,000
– 18% for companies with revenue above that threshold

The key opportunity for optimization lies in these adjustments—specifically in the proper recognition of certain revenues and expenses, as well as in the use of available tax reliefs.

Legal Opportunities to Reduce the Tax Base

The law recognizes a range of situations in which the tax base may be reduced. This includes certain types of income that may be excluded from taxation, as well as adjustments related to previously non-deductible expenses, depreciation, or state aid.

Reinvested profits play a particularly important role, as they allow companies—under specific conditions—to retain earnings within the business while reducing their tax liability.

Managing Employee Compensation

The structure of employee compensation can have a significant impact on the tax base. By using non-taxable benefits, companies can reduce their overall tax burden while maintaining or even increasing employees’ net income.

This approach not only provides tax efficiency but also contributes to higher employee satisfaction and motivation.

Use of Privately Owned Assets in Business Operations

When a business owner owns property or equipment used by the company, leasing these assets to the company represents a legitimate optimization strategy.

This increases the company’s expenses, thereby reducing the tax base, while the owner generates additional income subject to appropriate taxation.

Depreciation as a Tax Optimization Tool

Depreciation of fixed assets is an important factor in shaping the tax result. The application of accelerated depreciation rates allows for higher expenses in a shorter period, which reduces the tax base.

However, such an approach must be justified by the actual use of the asset, as tax regulations require alignment between accounting treatment and real business practice.

Investment in Employee Education

Employee training and education costs are recognized as tax-deductible expenses, and in certain cases, additional incentives may be available through state aid programs.

Beyond reducing the tax base, investing in employee skills and knowledge increases long-term productivity and competitiveness.

The Importance of Proper Timing (Accruals and Deferrals)

One of the most commonly overlooked areas in practice is the proper recognition of revenues and expenses across accounting periods. Business transactions often extend beyond a single financial year, making it essential to record them in the period to which they actually relate.

Incorrect timing can lead to overstated profits and, consequently, unnecessarily high tax liabilities.

Impairment and Write-Off of Receivables

When the collection of receivables becomes uncertain, the law allows for impairment or write-off under prescribed conditions. In such cases, receivables become an expense of the period, directly reducing the tax base.

However, strict criteria must be met for these expenses to be tax-deductible, which makes timely and accurate action essential.

Carryforward of Tax Losses

Tax losses from previous periods can be used to reduce the tax base in future years. This mechanism helps mitigate fluctuations in business performance and ensures a more balanced tax burden over time.

In practice, it is particularly relevant in industries characterized by cyclical business patterns.

Conclusion

Reducing corporate income tax is not the result of a last-minute decision, but rather of a systematic and well-planned approach to business management. Companies that plan ahead, understand available options, and align their operations with tax regulations can achieve significant savings while strengthening long-term financial stability.

Corporate income tax should therefore be seen as a manageable aspect of business, rather than a fixed cost beyond control.

If you would like to assess how these opportunities can be applied to your business and optimize your tax position, brandom can support you. Contact us to ensure your operations are both compliant and tax-efficient.