For the eleventh year running, the country with the most competitive tax code in the OECD is Estonia, according to the annual International Tax Competitiveness Index (ITCI) published on Tuesday 22 October by the business-friendly think-tank Tax Foundation. Latvia came second and Lithuania fifth. Portugal, France and Italy are at the bottom of the ranking, in places 35 to 37 out of 38.
Estonia’s score is due to four positive features of its tax system: its 20% tax rate on corporate income, which applies only to distributed profits; - its flat 20% rate for personal income, which does not apply to personal dividend income; - its property tax, which applies only to the value of the land; - its territorial tax system, which exempts 100% of foreign profits made by domestic companies from national tax, with few restrictions.
Latvia, which recently adopted the Estonian corporate tax system, also has a relatively efficient system for taxing earned income. Lithuania has a low corporate tax rate of 15%, which allows companies to deduct a large proportion of their investment costs. In addition, it levies a relatively uniform and low rate of personal income tax.
In contrast, France has multiple distorting property taxes with separate levies on inheritance, bank assets, financial transactions and a property wealth tax. Its tax burden on labour, at 47%, is one of the highest in the OECD. Portugal’s corporate tax rate is the second highest in the OECD, at 31.5%, and includes a number of distorting additional taxes. As for Italy, it has multiple distorting property taxes with separate levies on property transfers, inheritance and financial transactions, as well as a wealth tax on certain assets. Its VAT rate of 22% is relatively high and applies to the seventh narrowest consumption tax base in the OECD.
To read the study, go to https://aeur.eu/f/dzs (Original version in French by Anne Damiani)