Peacefully achieving independence from Serbia, Montenegro started its economic reforms, trying to fight down corruption, gathering more revenues for the budget and increasing economic growth. In December 2006, Montenegro’s parliament approved a 15 percent flat tax on personal income. Effective July 1, 2007, it replaced the previous system of three rates on taxable income; from 16 to 24 percent. The law set the flat rate at 15 percent in 2007 and 2008, reduced it to 12 percent in 2009 and 9 percent in 2010. Even more complex reforms were passed in Macedonia. In July 2006 the people of Macedonia voted in parliamentary elections for radical economic reforms. One of the main pillars of new Prime Minister Nikola Gruevski’s 100-point reform program was a flat tax, which was imposed in January 2007 at 12 percent. It replaced a corporate tax rate of 15 percent and personal income tax rates that ranged between 15 and 24 percent. The purpose of the low flat tax was to give Macedonia one of the lowest tax rates in Europe to help it emulate the success of the Baltic countries, which experienced strong economic growth after the adoption of their flat taxes. With an objective to additionally stimulate foreign and domestic investments, Montenegro followed the Estonian model in corporate income taxation, slashing the corporate investment tax on re-invested profits to 0 percent. With such taxes Macedonia and Montenegro have the most attractive taxation package in Europe. The first year of flat tax in Macedonia was highly successful. As predicted the revenues were higher, foreign investments were growing and economic growth was speeding up. From Montenegro and Macedonia the flat tax has moved to neighbouring Albania. In 2007 the government of Albania agreed on a flat tax of 10 percent aimed at outdoing its Balkan rivals and attracting international investors. The flat tax has worked very well also in Albania, supporting economic growth and financial stability.
19