August 2, 2013

Tax competition for manufacturing investments

The Eastern part of the European Union is not just a low-cost but also a low-tax location, supporting manufacturing on this way.

Corporate tax rates in the EU. Sorurce: Wikipedia

Most of the Eastern European countries provides corporate tax rates under 20%, while tax rates over 30% is not rare in Western Europe. Tax competition may be a controversial trend: some opinions interpret it as the liberalizing force in the word economy, others - involving the European Comission - think: tax competition is harmful. The emerging Eastern European member states of EU accompany old-school tax racers like Ireland to block tax harmonisation efforts in Europe.

Hungary: towards 10% corporate tax rate?

There are some goships how does Hungary decrease corporate tax rate. One of them is about the leading automaker: Audi. When the company investigated Hungary in 2010 as a potential site for its new €900 million and 1,800 new jobs investment, the Hungarian government drafted a tax cut from 19% to 10%. Finally (in the economic crisis) the government couldn't manage the tax cut (10% corporate tax is for small companies only), but this kind of "normative incentive" is in the air (Audi decided for Hungary).

Development tax allowance

Hungary provides a special development tax allowance for investors. If your investment in manufacturing industry reaches €10 million and you create 150 new jobs (€3.3 million/75 new jobs are enough in prefered regions like Eastern Hungary), you get an exemption for 80% of your corporate tax payable for 10 years following the fulfillment of the investment.

Background: a 2-minutes video about tax competition

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