Rising
public debt and elections in Europe and the U.S. have once again raised
the debate over taxes. Europe’s debt crisis is forcing some countries
to raise taxes. Spain, for example, raised its personal tax rate by 2
percentage points to 45 percent last year and France’s newly elected
Socialist Party is also proposing hiking taxes on the rich.
10. Ireland
Highest income tax rate: 48%
Average 2010 income: $50,400
Ireland’s tax rate of 48 percent is much higher than the 40 percent
average in Northern Europe. In fact, Northern Europe is the region with
the world’s second-highest personal income tax rates, according to
KPMG. The Irish government, which has been trying to bridge a big
fiscal gap after the financial crisis, raised the top rate by one
percentage point for a third-consecutive year in 2011. The country’s
top marginal rate kicks in at about $43,900 of taxable income. Citizens
also have to pay an additional social security tax of 4 percent. The
government increased tax rates that apply to gifts and inheritances as
well as capital gains from 25 percent to 30 percent in December. While
income taxes are high, the country has among the lowest corporate tax
rates in Europe of just 12.5 percent. As part of the latest austerity
measures, the government has introduced a homeowner tax of 100 euros or
$132 per household tax this year. But the government has struggled to
collect the fee with only one-third of homeowners paying up by the March
31 st deadline. Thousands of protesters have demonstrated against the
new property tax in Ireland’s capital, Dublin, in the last two months.
The tax is expected to rise dramatically next year once Ireland starts
to vary the charge based on a property’s value.
9. Finland
Highest income tax rate: 49.2%
Average 2010 income: $49,000
Finland’s current marginal rate of 49.2 percent comes into effect at
$91,000. The country has been reducing its top marginal rate from 53.5
percent in 2004 to put more money into the pockets of households in
order to fight the effects of inflation. Municipal tax rates are also
significant in Finland — varying between 16.25 percent and 21.5 percent.
If an individual belongs to a Finnish church, then a church tax of 1
percent to 2 percent may also be due. Workers have to pay additional
social security taxes like unemployment and pension insurance premiums.
Other taxes include property tax, gift tax and tax on interest as well
as a capital gains tax of 28 percent. Finland’s export-driven economy
has been threatened by Europe’s financial crisis. The country could fall
into a recession this year after the GDP forecast for 2012 was slashed
to 0.4 percent from 1.8 percent. The government announced plans in March
to increase revenues by $1.98 billion via tax hikes by 2015. The
measures include income tax hikes for high-earners with annual incomes
or pensions of more than $132,000, as well as those with inheritances in
excess of $1.3 million.
8. United Kingdom
Highest income tax rate: 50%
Average 2010 income: $52,320
The U.K. increased its highest tax rate by 10 percentage points in
2010 to 50 percent, joining the ranks of only three other countries with
such a high marginal rate. In March, the government backtracked and cut
the tax band for the highest earners to 45 percent, effective from
April 2013. As part of the reforms, the government also raised the
income tax threshold to $14,300, taking more poorly paid people out of
the tax net, while introducing a new stamp duty of 7 percent on the sale
of property worth more than $3.24 million. Britain’s top marginal tax
rate kicks in at an income of $231,000. Although 50 percent is the
current top rate of tax, the phasing out of personal allowances on
income over $160,000 can result in a marginal tax rate of 60 percent.
Workers have to pay a social security tax of 12 percent, which rises 2
percent on earnings above $1,259 per week. The country’s capital gains
tax also ranges from 18 percent to 28 percent. Britain’s tax debate was
further fueled last month when Treasury data revealed that 6 percent of
the country’s wealthiest people used tax reliefs to pay less than 10
percent tax in the 2010-11 financial year. That’s less than half the
level paid by the average Briton. In response, the government proposed
plans to cap tax relief on charitable donations to 25 percent of
earnings, which charities and philanthropists warn will discourage
people from giving.
7. Japan
Highest income tax rate: 50%
Average 2010 income: $53,200
Japan is the only Asian country to make the list of the top 10. Its
top tax rate of 50 percent is more than double Asia’s average rate of 23
percent. The country’s highest income tax rate is broken into two
parts with a marginal rate of 40 percent, which comes into effect at
around $217,000, plus an additional 10 percent municipal tax. Social
security taxes range from 0.6 percent for employment insurance to 5
percent for health insurance capped at $700 a month. With Japan’s
rapidly aging society, those 40 and over are also required to pay a
nursing care insurance of 0.8 percent, capped at $110 a month. Other
notable taxes include capital gains for stock transactions at 20
percent. Japan’s tax revenue is the fifth lowest among OECD members,
and the country has been dealing with its growing debt problems. Prime
Minister Yoshihiko Noda — Japan’s sixth leader in the past five years —
has seen his popularity plummet in opinion polls after proposing plans
to double the country’s sales tax to 10 percent in 2014. In 2011, the
tax burden for all Japanese families increased due to higher employee
and employer social security contributions and a cut in tax allowances
related to children, according to the OECD.
6. Belgium
Highest income tax rate: 50%
Average 2010 income: $52,700
Belgium’s highest tax rate of 50 percent is 5 percentage points
higher than the average for Western Europe, which has the highest
personal tax rates of any region globally. The highest marginal tax
rate kicks in at $46,900 of income. The country’s employee social
security rate is 13 percent with employer contributions at 35 percent.
Municipal taxes can be up to 11 percent of income, while nonresidents
pay a fixed 7 percent rate. Capital gains tax is either 16.5 percent or
33 percent, though taxpayers can get some exemptions. For expatriates,
if an executive travels 25 percent of their time on business, then the
top marginal tax rate can be reduced to 40 percent of income. Belgians
have the highest tax and social security burden, according to a recent
OECD study. In 2011, single taxpayers with an average income took home
less than 45 percent of what they cost their employer. Taxpayers at
higher earnings took home less than 40 percent. According to the study,
the overall tax burden increased for all types of households in the
country in 2011.
5. Austria
Highest income tax rate: 50%
Average 2010 income: $50,700
Austria, which is often ranked as one of the world’s best places to
live, levies a high income tax and social security burden on
households. Its highest marginal tax rate comes into effect at $80,000
of taxable income. The country’s social security rate ranges from 17
percent to 18 percent. Special payments for workers like a holiday bonus
are also taxed at 6 percent, up to a limit of one-sixth of the annual
income. Annual property tax is levied by municipalities at a rate of 0.5
percent to 1 percent of the property’s value. Other notable taxes
include a capital gains tax of 25 percent. In April, the Austrian
government nailed down a crucial deal with Switzerland to tax money
stashed away by its citizens in secret Swiss bank accounts. The existing
funds will be taxed between 15 percent to 38 percent based on the size
of the deposits and is expected to bring in $1.3 billion in revenue
starting in 2013. The government estimates about $12 billion to $20
billion in undeclared funds are parked in Swiss accounts.
4. Netherlands
Highest income tax rate: 52%
Average 2010 income: $57,000
Holland’s highest tax rate of 52 percent is much higher than the
regional average of 45.7 percent in Western Europe. The country’s top
marginal tax rate kicks in at about $74,500 of taxable income. Annual
property taxes generally range between $470 and $800. Other notable
taxes include a capital gains tax of 25 percent, a land transfer tax of 6
percent and an inheritance tax that varies between 10 percent and 40
percent. The Netherlands, which has been in recession since July,
announced a budget deal in April for 2013 that will freeze the incomes
of civil servants for two years to save the government $3 billion by the
end of 2013. Tax deductions for employee travel between work and home
will also be reduced to save $1.58 billion, along with the raising of
retirement age from 65 to 67 to grapple with the country’s ballooning
pension bill. Dutch government figures estimate that the overall effect
of the tax increases and pay freeze will reduce consumer spending by 3
percent in 2013.
3. Denmark
Highest income tax rate: 55.4%
Average 2010 income: $64,000
Denmark’s top marginal rate has come down from 62.3 percent in 2008
to 55.4 percent today after the government reached a deal to cut taxes
worth $4.8 billion in 2009 to boost the economy. But the country still
has the world’s third-highest income tax rate. Denmark’s current top
tax rate kicks in at $76,000. Dividend income and capital gains are
generally taxed between 28 percent and 42 percent, while some share
types can be taxed at rates up to 51.5 percent. Members of the Danish
church are also liable to a tax of 0.4 percent to 1.5 percent. Other
notable taxes include a real estate tax of between 1 percent and 3
percent of a property’s value, while gifts to close relatives over a
certain threshold are subject to a 15 percent tax. Denmark has
gradually decreased the tax and social security burden on incomes over
the last decade, according to the OECD. The tax wedge, which is income
tax as a percentage of total labor costs, decreased for all families as a
result of tax cuts implemented from 2000 to 2011. Single Danes with
average-to-high income have benefited the most from the tax cuts.
2. Sweden
Highest income tax rate: 56.6%
Average 2010 income: $48,800
Sweden is one of eight European nations to make the list of countries
with the highest income tax rates in the world. It also tops
neighboring Scandinavian countries, which all have the tax brackets of
over 48 percent. Sweden’s marginal top tax rate kicks in at $81,000.
Employees pay a social security tax of 7 percent, capped at a maximum
contribution of $4,300. Employers are obligated to contribute at a rate
of 31.4 percent, which is reduced to 22.2 percent for foreign businesses
without a permanent base in Sweden. Other notable taxes include a 30
percent tax on investment income and a municipal property tax of $960,
plus a maximum fee of 0.75 percent on the property’s value. All those
taxes fund a generous social security system. Sweden spends more of its
GDP on social services than any other country in the world, according to
the OECD. Swedes receive free education and subsidized healthcare and
public transport, along with a basic pension guaranteed by the
government. But the country has also significantly reduced the tax and
social security burden on incomes between 2000 and 2011. For most
families, the tax wedge, which is the income tax as a percentage of
total labor costs, declined by more than 7 percent over those 11 years, according to the OECD.
1. Aruba
Highest income tax rate: 58.95%
Average 2010 income: N/A
Aruba, a Dutch territory, has the highest income tax rate in the
world. It is also the only country in the Americas to make the top 10
list. The tax rate used to be as high as 60 percent before 2007. The
current top marginal rate of 59 percent kicks in at around $165,000.
Married individuals have a lower maximum rate of 55.85 percent, compared
with single taxpayers at 58.95 percent. Other notable taxes include a
capital gains tax of 25 percent, along with health, pension and accident
insurance premiums. With an array of social security taxes, Aruba is
known to have one of the highest living standards in the Caribbean. The
small island’s exceptionally high tax rate is also much higher than the
Caribbean average of 26.7 percent. Islands like the Bahamas, Bermuda
and Cayman Islands have no personal income taxes. The closest to Aruba
in terms of income tax rates are neighboring South American countries
Argentina, Colombia, Ecuador, Guatemala and Venezuela, which have
maximum tax rates ranging between 31 percent and 40 percent, according
to KPMG.
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