RIGA - The Baltic states have good chances to raise foreign investment since they have low tax rates, good legislation and much lower labor costs than the old member states of the European Union, the president of Germany's central bank, Axel A. Weber, said this week.
Speaking at the conference Banking and Finance in the Baltics, Weber noted that Estonia had a zero percent corporate income tax rate (if profits remain undistributed) while Latvia and Lithuania both had a 15 percent tax capital-gains tax. Personal income tax rates, meanwhile, are 26 percent in Estonia, 25 percent in Latvia and 33 percent in Lithuania, said the central banker, commenting that Europe's states can only dream of such rates.
He said the situation of the high tax rates in the old member states could not be changed since the governments of these countries had very big expenditures.
"Therefore reductions of tax rates cannot be expected from the old EU member states," he noted.
If there is a discussion underway about raising tax rates in new member states, then this cannot be about raising all the taxes but direct and indirect taxes, he noted.
Weber wound up his speech stating that the tax policy in the new EU members is much more competitive than in the old member states and is thus providing more opportunities to the new members.
The low tax rates, especially the corporate income tax, have triggered objections on the part of several old member states, especially France and Germany, which have called to harmonize taxes within the EU, mainly by establishing a minimum tax rate for all 25 members.
All three Baltic countries have defended their low tax rates and said they would defend states' sovereign rights to determine these rates. Latvian officials in particular have noted that Latvia has the lowest living standard in the EU and the low corporate income tax rate is a realistic way for raising investment and developing business activity.
