Estonia maintained a flat income tax rate of 26 percent on most sources of income, while Hungary introduced a lower corporate tax of 18 percent. Both countries attracted high FDI inflows. Some governments, including the Czech Republic and Hungary, concerned with the winding down of privatization programs and an expected dip in FDI inflows, introduced new tax holidays and other investment incentives. Some Baltic countries are now flirting with the idea of abolishing corporate income tax, although they would continue taxing dividends distributed to shareholders. Many Central and Eastern European countries severely restrict deductions for expenses that are routinely allowed in the EU and North America, including advertising expenses, business travel, inventory losses, and bad debts.
Loss carry forward is usually very limited, and depreciation rates are unrealistically long.
Progress is being made in this area, but it is slow and requires extensive technical assistance and training for the tax administration. Several countries are introducing or considering more transparent and automatic forms of investment incentives, such as accelerated depreciation, more generous loss carry-forward, and investment tax credits or investment tax allowances that operate automatically through the tax code without need for prior screening and approval. Another important aspect of the business environment is business regulation, including investment procedures. While many countries have a sound legal framework on paper, investors, in general, and foreign investors, in particular, complain that implementation is inconsistent, unfair, rigid, or corrupt. Customs procedures can vary widely from one border post to another in Bulgaria.