At the beginning of 2007, Macedonia became the ninth country in the Baltic region of Europe to adopt a flat tax. The new tax replaced the corporate tax of 15 percent and personal income tax of 15 to 24 percent with one flat tax of 12 percent for both personal and corporate income. The flat tax is scheduled to be reduced to 10 percent in 2008, which will give Macedonia the lowest flat tax rate in Europe, along with Kyrgyzstan and Kazakhstan.
The Macedonian government made it clear that the move to a low flat tax is designed to increase foreign investment into the country, mimicking the success of its regional neighbors Estonia, Latvia and Lithuania. With a population of around 2 million people, Macedonia is looking to foreign capital to bolster its economy.
Lowered taxes are not the only potential bright spot for foreign investors. Behind the leadership of 36-year-old prime minister Nikola Gruevski, Macedonia appears to be headed for membership in the European Union in 2008. EU membership coupled with low—and still decreasing—tax rates could accelerate foreign investment into the country.
These measures ought to help Macedonia, which is still struggling for worldwide recognition. While few investors likely know where Macedonia is located, many more might remember the name as that of the civilization led by Alexander the Great. In fact, however, historical Macedonia and present Macedonia are not the same geographically. This has led to some conflict with Greece, which has shown concern about the name’s implied territorial ambitions for the Macedonian region of Greece.
The naming dispute with Greece is likely not the greatest risk factor for an investor looking at Macedonia. Fear of ethnic conflicts within the country may be what causes many international investors to remain on the sideline. It was not long ago that the ethnic minority Albanian population laid down their arms in exchange for greater autonomy within the state.