CORPORATE TAX INCENTIVES IN TRANSITORY ECONOMIES: CASE OF THE REPUBLIC OF SERBIA AND REPUBLIC OF MACEDONIA

Tax incentives are one often used tool by low-income countries for attracting capital and money into their economies. Usually, formerly closed economies during their transition to open-market economies use different forms of tax and other types of incentives to attract foreign companies and their capital to be placed into these economies. The case of the former Yugoslav republics, Serbia and Macedonia, is an interesting example of incentives established with the aim to reconstruct and rebuild industry and infrastructure, to get better welfare, etc. Of the various incentives in the pool, tax incentives are used the most. The authors of the article analyze the policy of corporate tax incentives in the Republic of Serbia and Republic of Macedonia since 2000, which have been changing in forms and scope as a consequence of the Serbian/Macedonian tax system’s reform. The authors stressed differences between the two countries, which are mostly influenced by the negotiation process with European Union and the need to harmonize national legislation with European Union rules: in Serbia tax incentives in the sphere of corporate taxation were very generous at the beginning of the period; the similar situation was in Macedonia. However, after the negotiation process between the European Union and Macedonia was “frozen” in 2005 and the negotiation and accession process with Serbia has been opened, the situations in these countries have become different: the tax incentives’ policy in Macedonia stayed generous comparing with Serbia which had to be narrowed because of the European Union pressure (to avoid being accused of harmful tax competition).