Open Door Tax Policy for Foreign Direct Investments in South Eastern Europe: Tax Incentives and Flat Tax in Action

Abstract:

Open door tax policies have been offered as a key ingredient for attracting foreign capital in the region of South Eastern Europe. In the last decade, these countries have strived to respond to the global tax competition and to create attractive business environments for economic growth and foreign direct investments (FDI). Promptly, seven of nine South Eastern European countries introduced flat taxes for corporate income, and re-modeled fiscal surrounding for FDI. Were these transformative policy decisions, or just cosmetic alterations to the existing conditions for doing business? How much impact have the flat tax and tax incentives had on the FDI?

This article analyses open door tax policies, in particular the nexus between, on the one hand, the flat tax and related tax incentives, and on the other, the FDI. A comparable measure of each country’s implementation of open door tax policy is created, and countries are analysed separately, with focus on the legal and economic aspects. Innovative methodology of awarding points to each determinant of the open door tax policy is applied in combination with measuring of political and legal variables, that drives the conclusion about the significance of each factor for FDI in the Region.