Tax Competitiveness Index 2023: Estonia has world’s best tax system

Such an indicator gives an assessment of the quality of the tax system, and not the total amount of tax fees. When creating a taxation system, it is important to take into account not just the amount of taxes that go to the country’s budget, but also the methods of collecting and administering taxes. Index makes it possible to identify all indicators, assess possibilities to compete and neutralism. A good taxation system has minimal marginal rates, which reduces the risk of losing opportunities to invest and ruining a business.

Our experts will provide you with comprehensive advice on issues related to the organization of taxation in a particular jurisdiction. We work with many countries and commercial boards, in particular, we provide assistance in obtaining a crypto exchange license in Estonia, a gambling license in Malta, a Forex license in Hong Kong, and more.

Ranking of international tax competitiveness index

After research by the Tax Foundation analytics center, a list of states with the most favorable tax rates for doing business was published. Let’s take a look at this ranking.

1. Estonia has been the leader in this list for more than 8 years. The jurisdiction has zero real estate tax and only up to 2.5% of the cadastral value of the land tax on land.
2. Latvia recently has tax-system similar to previous country, which also makes it very beneficial for businessmen.
3. New Zealand also offers favorable conditions, here there are minimum taxes on personal income and exemption from commissions on income growth is possible if the total maximum rate with income tax-rates is up to 33%.
4. In Switzerland, a marginal corporate tax rate of 19.7% is proposed, although previously it was higher – 21.1%.
5. Luxembourg: income tax, which is removed, depending on the profit. It ranges from zero to 42 percent.
6. Lithuania raised the maximum income tax rates for individuals. Previously it was 27%, now it is 32%. BUT at the same time, the country still takes its place of honor in the ranking of jurisdictions with minimal taxes.
7. The Czech Republic provides for loyal taxation-system for citizens and foreign entrepreneurs.
8. In Sweden, they reduced corporate incomes tax by 0.8%, and also made more favorable conditions for preferential payment for R&D and minimized the limit on personal income taxes to 52.28%.
9. In Australia, tax rates are calculated based on income and range from 27 to 30 percent.
10. The rating is concluded by Norway, which also boasts minimal taxes from 2021.

Simple tax-system is less hassle

The ITCI index is needed to evaluate the degree of how a jurisdiction’s taxation system is competitive and neutral. To determine these indicators, ITCI checks more than 40 tax policy criteria. Such indicators reveal not just rates, but also the structure of taxes. Corporate commissions, taxes on incomes obtained, consumption, property, etc. are considered.

Although the usual tax-rate on company earnings in Estonia is 20%, the tax system of the state is constantly recognized as the most competitive in the world. 20% tax on earnings from operation of the company is paid exclusively if incomes will be distributed. It means the jurisdiction’s tax-system gives possibilities for firms to reinvest at a 0% rate. It is necessary to pay commissions on property exclusively for the price of the land plot, and not for capital or estate. Jurisdiction also sets a tax-system on territorial base completely exempting incomes received abroad from taxes.

Great privilege of Estonian tax-system is efficiency of correspondence with obligations. In average OECD country, firms spend about 42 hours, while in Estonia only 5.

Low marginal tax-rates create competitive tax code

Different states use different measures that are aimed at improving the entrepreneurial activity of companies. They even try to strengthen the economy with the help of fiscal instruments. The major shifts that were enacted to cut taxes hit direct commissions and income tax.

Analyzing such changes, we can say that the main priority for jurisdictions is to slow down the recession and improve the economy. Separate changes were made in order to support certain areas, such as firms that invest in research and development, medium and small business-projects and real estate. In accordance with calculations, such support for companies will improve the level of competitiveness of the economy of the jurisdiction.

Progressive tax commissions are created to reduce the taxes of individuals who earn less. Such a tax system affects the wealthy for the most part, so the propertied classes of society are always opposed to progressive taxation.

Developed jurisdictions minimize corporate tax-rates, and sometimes personal incomes tax, and social commissions, thereby accelerating the development of the economy. Tax cuts lead to an increase in resources for investment, but their concentration is mainly among the rich and people with average incomes, which makes inequality even higher. In some states, corporate commissions are changed to a tax on profit streams. At times of recession, taxes are reduced to increase activity of population and companies in a bad economic situation. Government spending has a very strong effect on aggregate demand and GDP, which enhances the growth of both investment and consumer demand. Thus, the main goal of minimizing taxation in countries is to stimulate investment in economic progress and business niches.

Our company is experts in taxation, company formation and licensing. We have been present in this field for many years and operate all over the world. This is a guarantee of our professional excellence and has become the foundation of trust for our clients.

This article was prepared by Denys Chernyshov, a lawyer, founder and CEO of the well-known company Eternity Law International, as well as the recently launched international medical project Eternity Life Clinics.