The Flat Tax Spreads to Montenegro
April 13, 2007
By Alvin Rabushka
In December 2006, Montenegro’s parliament approved a 15% flat tax on personal income. Effective July 1, 2007, it replaces the previous system of three rates of 16% on monthly taxable income between €65-218, 20% on monthly taxable income between €218-381 euro, and 24% on monthly taxable income exceeding €381 euro. (€1 = $1.35) The new law sets the flat rate at 15% in 2007 and 2008, reduces it to 12% in 2009 and 9% in 2010.
Montenegro has set the corporate profits tax rate at 9%, reduced from the previous two-rate system of 15% on taxable profit up to €100,000 and 20% on the gain exceeding €100,000.
In 2010, Montenegro will have a unified flat tax of 9% on personal and corporate income. This will be one percentage point less than the 10% unified rate in Macedonia, two points below Georgia, and three points less than Russia and Ukraine.
The flat tax movement in Montenegro was initiated in March 2004 by the Montenegro Business Alliance, a private Chamber of Commerce (www.visit-mba.org). Further information on Montenegro’s flat tax and its investment climate can be obtained from Dr. Petar Ivanovic, Director of the Montenegrin Investment Promotion Agency (www.mipa.cg.yu)
The flat tax has also been put on the agenda in three more countries. On March 13, 2007, Prime Minister Sali Berisha of Albania secured approval of the Strategic Planning Committee that he chairs for a unified 10% flat tax on personal and corporate income. The proposal has been sent to Albania’s parliament for its consideration. If enacted in a timely manner, the 10% tax on personal income would take effect on July 1, 2007. The proposed 10% flat tax on would slash Albania’s corporate 20% tax in half effective January 1, 2008. The reform will streamline the fiscal system, eliminating the arbitrage between the corporate tax, dividends, and the personal income tax.
In the Czech Republic, the government announced a raft of major tax reforms on April 2, 2007. If approved by the Czech parliament, the proposals set forth by Finance Minister Miroslav Kalousek would, effective January 1, 2008, levy a 15% flat tax on personal income, replacing the current system with four rates of 12, 19, 25, and 32%. The reforms also include a reduction in the corporate tax rate from 24% to 19%, putting the latter in line with those in neighboring Slovakia and Poland. The proposals face a struggle in parliament with only half the seats held in the Chamber of Deputies by ruling coalition parties.
In late March 2007, Prime Minister and Nobel prize winner Jose Ramos-Horta of East Timor set forth a tax reform plan designed to encourage the local business sector, attract foreign investment, largely from Australia, and create jobs. Ramos-Horta plans to transform East Timor into a free-trade nation, with no tariffs, sales tax, or excise taxes save on dangerous substances. He proposes to set personal and corporate income tax rates at the same flat rate between 5 and 10%. His proposal is being drafted into law based on consultations with the World Bank, the United Nations Development Program, academics, and the International Monetary Fund. Although the IMF had pushed for a flat rate between 15 and 20% to prevent East Timor from becoming a tax haven, the availability of oil revenue permits a lower rate, which minimizes the need to spend resources on tax collection.
April 13, 2007
By Alvin Rabushka
In December 2006, Montenegro’s parliament approved a 15% flat tax on personal income. Effective July 1, 2007, it replaces the previous system of three rates of 16% on monthly taxable income between €65-218, 20% on monthly taxable income between €218-381 euro, and 24% on monthly taxable income exceeding €381 euro. (€1 = $1.35) The new law sets the flat rate at 15% in 2007 and 2008, reduces it to 12% in 2009 and 9% in 2010.
Montenegro has set the corporate profits tax rate at 9%, reduced from the previous two-rate system of 15% on taxable profit up to €100,000 and 20% on the gain exceeding €100,000.
In 2010, Montenegro will have a unified flat tax of 9% on personal and corporate income. This will be one percentage point less than the 10% unified rate in Macedonia, two points below Georgia, and three points less than Russia and Ukraine.
The flat tax movement in Montenegro was initiated in March 2004 by the Montenegro Business Alliance, a private Chamber of Commerce (www.visit-mba.org). Further information on Montenegro’s flat tax and its investment climate can be obtained from Dr. Petar Ivanovic, Director of the Montenegrin Investment Promotion Agency (www.mipa.cg.yu)
The flat tax has also been put on the agenda in three more countries. On March 13, 2007, Prime Minister Sali Berisha of Albania secured approval of the Strategic Planning Committee that he chairs for a unified 10% flat tax on personal and corporate income. The proposal has been sent to Albania’s parliament for its consideration. If enacted in a timely manner, the 10% tax on personal income would take effect on July 1, 2007. The proposed 10% flat tax on would slash Albania’s corporate 20% tax in half effective January 1, 2008. The reform will streamline the fiscal system, eliminating the arbitrage between the corporate tax, dividends, and the personal income tax.
In the Czech Republic, the government announced a raft of major tax reforms on April 2, 2007. If approved by the Czech parliament, the proposals set forth by Finance Minister Miroslav Kalousek would, effective January 1, 2008, levy a 15% flat tax on personal income, replacing the current system with four rates of 12, 19, 25, and 32%. The reforms also include a reduction in the corporate tax rate from 24% to 19%, putting the latter in line with those in neighboring Slovakia and Poland. The proposals face a struggle in parliament with only half the seats held in the Chamber of Deputies by ruling coalition parties.
In late March 2007, Prime Minister and Nobel prize winner Jose Ramos-Horta of East Timor set forth a tax reform plan designed to encourage the local business sector, attract foreign investment, largely from Australia, and create jobs. Ramos-Horta plans to transform East Timor into a free-trade nation, with no tariffs, sales tax, or excise taxes save on dangerous substances. He proposes to set personal and corporate income tax rates at the same flat rate between 5 and 10%. His proposal is being drafted into law based on consultations with the World Bank, the United Nations Development Program, academics, and the International Monetary Fund. Although the IMF had pushed for a flat rate between 15 and 20% to prevent East Timor from becoming a tax haven, the availability of oil revenue permits a lower rate, which minimizes the need to spend resources on tax collection.
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