The Impact of Reduced Tax Rate of Corporate Income Tax and Other Incentives in Foreign Direct Investments in Selected Balkan Countries

Abstract

This paper analyze the nuanced relationship between corporate income tax (CIT ) rate reductions as a tax incentive and foreign direct investments (FDI) across the Western Balkan countries. Additionally, it examines the extent to which they have progressed with their achievements during two decades (2000-2022). The transition of the Western Balkans from a closed and controlled economy to an open market economy has been challenging, but despite this, they have implemented certain policies to compete in the global market. For instance, they have reduced tax rates and offered tax incentives to attract foreign investors. This has had the effect of lowering the average tax rate, specifically in the year 2000, the average tax rate in corporate income tax was around 17%, while in 2023 the average tax rate in corporate income tax is 11%, or 6% lower. However, despite taking measures, the expected results have not been achieved. Privatization of public enterprises has been one of the main investments that these countries have attracted. The paper addresses the problems that have led to poor results and the inability of countries to convince investors for larger investments. In Kosovo, the issue of progress in this area is being overlooked by the government. It is important for Kosovo to recognize that neighboring countries are making significant progress, and therefore, it is critical to conduct research that not only highlights the current situation but also identifies potential solutions for the future.

Keywords

• ax rates
• tax incentives
• tax competition
• western balkan countries
• tax reforms
• tax reduction