Estonia Tops the International Tax Competitiveness Index

Estonia (Once Again) Tops the International Tax Competitiveness Index

Another year, another victory for little Estonia.

For the fifth year in a row, Estonia has topped the Tax Foundation’s International Tax Competitiveness Index (ITCI).

As explained in the ITCI, Estonia came in first thanks to four fundamental factors in its tax code: 1) “a 20 percent tax rate on corporate income that is only applied to distributed profits;” 2) “a flat 20 percent tax on individual income that does not apply to personal dividend income;” 3) a property tax that “applies only to the value of land, rather than to the value of real property or capital,” and; 4) “a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.”

Also, in what’s quickly becoming an annual tradition, France came in last with the OECD’s least competitive tax code for the fifth year in a row.

France rounds out the list thanks to its 34% corporate income tax rate, high property taxes, wealth tax, financial transaction tax, estate tax, and “high, progressive, individual income taxes that apply to both dividend and capital gains income.”

2018 International Tax Competitiveness

2018 International Tax Competitiveness: Who Rose Up the Rankings?

The biggest gain in this year’s ITCI came courtesy of Belgium, who jumped six spots to number 19 in the rankings.

This rapid rise followed the adoption of “a significant tax reform package that will progressively reduce its statutory income tax rate over the next several years.”

For instance, the Belgian corporate tax for 2018 dropped to 29.58% from 33.99% in 2017 with the participation exemption going from 95 to 100%.

Also worth noting, the United States, following the passing of its tax reform earlier this year, shot up four spots in the rankings and now sits at number 24.

This is mainly a result of “a reduction of the corporate income tax rate from 35 percent to 21 percent, improvements to expensing of capital investments, and rate changes for the personal income tax.”

Chile also gained two spots and moved to 31st in the rankings as a result of altering the personal income tax and dropping “its top marginal tax rate from 40 percent to 35 percent, partially flattening its rate structure.”

Background on the International Tax Competitiveness Index

A Quick Background on the International Tax Competitiveness Index

In case you’ve forgotten or are learning about the ITCI for the first time, this index, which focuses on OECD nations, aims to measure how effective a country’s tax code is based on its competitiveness and neutrality.

According to the Tax Foundation’s study, “a competitive tax code is one that keeps marginal tax rates low,” meaning that companies “will look for countries with lower tax rates on investment to maximize their after-tax rate of return.”

Under this definition, high corporate tax rates pose a threat to economic growth, while immovable property levies do not.

Furthermore, a neutral tax code is “one that seeks to raise the most revenue with the fewest economic distortions,” meaning that “it doesn’t favor consumption over saving, as happens with investment taxes and wealth taxes,” or limits the number of “targeted tax breaks for specific activities carried out by businesses or individuals.”

For a full look at the results, click HERE.

How did your jurisdiction fare? And what’s required for it to move up the rankings? Let us know your thoughts with a comment!

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