12% tax rate-article in The Sunday Times

I hope you don't mind, but I looked up flat taxes on wikipedia

Eastern Europe

Advocates of the flat tax argue that the former-Communist states of Eastern Europe have benefited from the adoption of a flat tax. Most of these nations have experienced strong economic growth of 6% and higher in recent years, some of them, particularly the Baltic countries, experience exceptional GDP growth of around 10% yearly, although this growth cannot be definitely linked to the tax structure. Other factors, primarily the advent of capitalist economic systems and rapid market expansion after Soviet (communist) domination explain the rapid growth. Economic growth in these countries would likely have occurred regardless of the chosen tax system. The starting point for these economies was so low that even slight numerical improvements equate to large growth when expressed as a percentage.
  • Whilst in some countries the introduction of a flat tax has coincided with strong increases in growth and tax revenue, there is no proven causal link between the two. For example, it is also possible that both are due to a third factor, such as new government that may institute other reforms along with the flat tax.
  • Lithuania, which levies a flat tax rate of 24% (previously 27%) on its citizens, has experienced amongst the fastest growth in Europe. Advocates of the flat tax speak of this country's declining unemployment and rising standard of living. They also state that tax revenues have increased following the adoption of the flat tax, due to a subsequent decline in tax evasion and the Laffer curve effect. Others point out, however, that Lithuanian unemployment is falling at least partly as a result of mass emigration to Western Europe. The argument is that Lithuania's comparatively very low wages, on which a non-progressive flat tax is levied, combined with the possibility now to work legally in Western Europe since accession to the European Union, is forcing people to leave the country en masse. The Ministry of Labour estimated in 2004 that as many as 360,000 workers might have left the country by the end of that year, a prediction that is now thought to have been broadly accurate. The impact is already evident: in September 2004, the Lithuanian Trucking Association reported a shortage of 3,000-4,000 truck drivers. Large retail stores have also reported some difficulty in filling positions.[23] However, the emigration trend has recently stopped[citation needed] as enormous real wage gains in Lithuania (presumably due to the shortage of workers) have caused a return of many migrants from Western Europe. In addition to that, it is clear that countries not levying a flat tax such as Poland also temporarily faced large waves of emigration after EU membership in 2004.[citation needed]
  • In Estonia, which has had a 26% (24% in 2005, 23% in 2006, 22% in 2007, 21% in 2008, 21% in 2009, planned 20% in 2010, 19% in 2011, 18% in 2012) flat tax rate since 1994, studies have shown that the significant increase in tax revenue experienced was caused partly by a disproportionately rising VAT revenue.[24] Moreover, Estonia and Slovakia have high social contributions, pegged to wage levels.[24] Both matters raise questions regarding the justice of the flat tax system, and thus its long-term viability. The Estonian economist and former chairman of his country's parliamentary budget committee Olev Raju, stated in September 2005 that "income disparities are rising and calls for a progressive system of taxation are getting louder - this could put an end to the flat tax after the next election" [25]. However, this did not happen, since after the 2007 elections a right-wing coalition was formed which has stated its will to keep the flat tax in existence. However, critics argue that the tax rates these countries have are actually more progressive than flat.[25]
  • According to a 2010 study[26] published in the Brussels newspaper L'Anglophone, the tax burden for typical workers in Central and Eastern Europe's "flat tax" countries is slightly higher (40.3% versus 40.2% of the total cost of employment) than that of the progressive systems elsewhere in the EU. "Slovakia has a “flat tax” rate of 19%," wrote the authors,[27] "but its employers pay a 35.2% contribution to social security (higher than the 34.8% in Belgium) and, in addition to the flat income tax, employees have 13.4% deducted for social security (also higher than the 13.07% in Belgium)," adding that a typical Slovak worker's Tax Freedom Day is a day later than a Finnish worker's.
 
See page 3 of this document for the top income tax rates in each country:

[broken link removed]


Bulgaria = 10%
Czech = 15%
Estonia = 21%
Latvia = 26%, up from 23% due to the IMF
Lith = 15%
Romania = 16%
Slovakia = 19%

I'm not sure if all these are flat taxes, but they are the top income tax rate in each country.
 
Just out of interest, how difficult is it for a self emplyed person earning €200k+ to set themselves up as a business and pay less tax?
 
DerKaiser said:
Just out of interest, how difficult is it for a self emplyed person earning €200k+ to set themselves up as a business and pay less tax?
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From my read of the article, they don't have to set themselves up as a business to pay less tax. The budget kindly hands them a little bonus, regardless of whether they are set up as a business or a sole trader.
 
Complainer said:
From my read of the article, they don't have to set themselves up as a business to pay less tax. The budget kindly hands them a little bonus, regardless of whether they are set up as a business or a sole trader.
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I thought their marginal rate of taxation was going from 55% to 52%, which is a nice bonus.

My question though was whether this pales by comparison when they could easily slash their effective rate of taxation by setting themselves up as a business.
 
DerKaiser said:
My question though was whether this pales by comparison when they could easily slash their effective rate of taxation by setting themselves up as a business.
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Dunno, tbh. But wouldn't they have the same tax liability when they get money out of the business, either as income or dividends or whatever?
 
Delboy said:
don't they have some sort of very low tax rate in Spain for foreigners for the 1st 4 years they are working there, or something like that. It's done wonders for La Liga in fairness
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They have the same in Denmark - 25% for the first 3 years. And yes, I am tempted!
 
Interesting posts, Protocol. Seeing as how we are more like Eastern than Western Europe now, perhaps we should be looking at their tax rates
 
capital allowance
Tax
tax allowance for new plant and machinery
in the United Kingdom and Ireland, an allowance against income or corporation tax available to businesses or sole traders who have purchased plant and machinery for business use. The rates are set annually and vary according to the type of fixed asset purchased, for example, whether it is machinery or buildings. This system effectively removes subjectivity from the calculation of depreciation for tax purposes. [broken link removed]

Basically someone who spends money on their business shouldn't have to pay income tax on that money as well. It would be like a plumber paying income tax on the money he spent buying a small warehouse.
 
Purple said:
Basically someone who spends money on their business shouldn't have to pay income tax on that money as well. It would be like a plumber paying income tax on the money he spent buying a small warehouse.
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The Irish Times article refers to people with high incomes using Capital Allowances/ rental losses to reduce their taxable income.
In the main these would not be allowances on plant and machinery as most trades requiring large plant are run through companies. The Capital Allowances used by high earners usually relate to property such as Hotels, Nursing Homes, Creches and urban renewal properties known as Section 23. Which are utilised against rental income.

I was trying to illustrate the effective rate for someone with €300,000 worth of rental income and €250,000 of capital allowances on a property.

The point is mute now anyway as Budget 2011 has effectively abolished capital allowances on property.

I would be interested to hear how a plumber is claiming capital allowances on a warehouse. Not all buildings qualify for capital allowances.
 
DerKaiser said:
Just out of interest, how difficult is it for a self emplyed person earning €200k+ to set themselves up as a business and pay less tax?
Click to expand...

Do you mean set themselves up as a company?
If so all they need to do is set up a company and transfer the trade into it.
 
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