Comparing overall tax burdens in different countries is not always straightforward because of the different types of taxes that are levied. For example, most international tax comparisons note that the U.S. has no sales tax – which may be a surprise to you until you realize they are referring to a national sales tax, sometimes known as a Value Added Tax (VAT). Certainly, you are paying some combination of state and local sales taxes – if not, please let us know where in the U.S. that you live.
KPMG, the international accounting firm, periodically releases global tax comparison studies covering corporate and indirect taxes; in 2012, they released a global tax comparison for individual income tax and social security tax burdens. More recent tax information can be found on websites such as TradingEconomics.com. These sources reveal some interesting extremes, which are summarized below.
- Personal Income Taxes – According to TradingEconomics.com, Chad and the Ivory Coast top the list with a 60% tax rate (based on 2013 data). Other high personal income tax rates (based on 2014 data) may be found in Aruba (59%), Sweden (57%), Denmark (55.6%), The Netherlands and Spain (52%) and Finland (51.25%).
For low income tax rates, how does 0% sound? Several countries impose no personal income tax rate at all and derive their income from other tax sources such as corporate or indirect taxes. They include most of the Arabian Peninsula (Saudi Arabia, Bahrain, Qatar, Oman, Kuwait and the United Arab Emirates), and the island tax havens of Bermuda, the Bahamas, and the Cayman Islands. The lowest non-zero tax rate is Guatemala’s 7%.
- Corporate Taxes – According to KPMG’s 2014 report, the US comes in second for highest corporate taxes at 40%... and we may really be first. The United Arab Emirates comes in first at 55% with this cryptic footnote – “Having the highest statutory rate does not mean that the tax is actually levied.” Make of that what you will. Japan follows with a 35.64% corporate tax rate. High corporate tax rates can be deceiving, however, as available tax breaks can significantly reduce the amount of tax actually paid, especially in the US. For example, Citizens for Tax Justice reports that from 2008 through 2012, 26 of the Fortune 500 companies paid no corporate tax whatsoever, including: Boeing (BAN), General Electric (GEN), and Verizon (VZN).
At the other end of the spectrum, the lowest corporate tax is 9% in Montenegro, followed by six countries at 10% (Bosnia/Herzegovina, Bulgaria, Gibraltar, Macedonia, Paraguay, and Qatar).
- Indirect Taxes – Sales taxes, consumption taxes, financial transfer taxes, and other categories of indirect tax complement lower taxes for some countries and aggravate the tax rate in others.
According to the KPMG report, Aruba complements its high personal income tax with the lowest indirect tax rate of all countries at 1.5% -- far below the next lowest rate at 5%. Meanwhile, indirect taxes add to the burden in Northern Europe, with Denmark, Norway, and Sweden’s 25% rate tied for third and Finland right behind at 24%.
The top two indirect tax rates in The KPMG report are in Hungary (27%) and Iceland (25.5%). However, TradingEconomics.com lists Bhutan as having an absurd VAT tax of 50% (the KPMG report does not include Bhutan).
- Social Security Taxes – Social security taxes or the overseas equivalents are highest in France according to TradingEconomics.com, with a rate of 55.53% – however, the employee burden is only 13.8%, with companies paying 41.73%. The highest employee burden is in The Netherlands at 30.65%.
The 2012 KPMG report does a nice job of looking at more representative individual tax burdens by combining effective income tax and employee components of social security tax rates on $100,000 and $300,000 incomes in U.S. dollars. Sales taxes are omitted.
At the $100,000 level, Belgium comes in on top at 47% and Macau at the bottom with 4.6%. At the $300,000 level, France takes the lead with 54% and Kuwait has the lowest burden at 2.7%
How does the U.S. fare? Slightly below average in both categories, with 24% and 30.5% respectively – in the range as such countries as Australia, Sri Lanka, Syria, and Malawi.
These studies drive home a significant point. Taxes may be annoying in America, and we could have it better – but we certainly also could have it worse.