UAE Tops Expat Tax League

by Lorys Charalambous, Tax-News.com, Cyprus

19 November 2007

The United Arab Emirates (UAE), Russia and Hong Kong are amongst the world's most benign personal tax environments while Belgium, Denmark and Hungary are the least attractive, according to a survey of expatriate hot spots by Mercer, the global consulting firm. The data also shows that, in general, married employees are better off than single employees, while married employees with two children fare the best.

Mercer's 2007 Worldwide Individual Tax Comparator Report analysed the tax and benefits systems across 32 countries, focusing on personal tax structures, average salaries and marital status. This data is used by multinational companies to structure pay packages for their expatriate and local market employees.

For single managers, the UAE is the most attractive tax environment according to percentage of net income available. The UAE ranks highly, as it does not assess any income tax, and the country's social security contributions amount to only 5% of an employee’s gross salary. Russia, ranked number 2, applies a flat tax of 13% across all income levels, while Hong Kong was placed 3rd, with taxes and social security contributions at 14.2% of gross base salary.

Excluding Russia, in general, European countries have less attractive tax environments and dominate the bottom of the rankings. The UK ranks joint 14th, followed by Ireland (18), Spain (19), and Switzerland (21). France and Germany are ranked 22 and 29 respectively.

At the bottom of the rankings, single managers in Hungary (30), Denmark (31) and Belgium (32) pay, respectively, 48.5%, 48.6% and 50.5% of their gross income in taxes and social security contributions.

Brian Waite, a senior consultant specialising in international issues, commented: "Local taxation is one of several factors that multinationals take account of when deploying staff across the globe. It has an obvious impact on take-home pay, and in some countries with low or zero tax rates it is an important incentive for employees to work abroad. In other high-tax destinations, multinationals need to create compensation packages that at least match their expatriates' purchasing power in the home country."

"Other important considerations for expatriate allowances are housing, private schooling and local cost of living adjustments, and there are additional complications around contributions to the home country pension plan. These factors can all contribute to the high cost of a global expatriate workforce."

Markus Wiesner, Mercer's head of operations in Dubai, added: "We often find that the UAE's zero taxation is a strong draw for expatriates on short-term assignments. For three to five years, young professionals can fast-track their savings to afford a mortgage when they return home, while senior executives can maximise their savings potential ahead of retirement. It's in these particular groups that we get a really good mix of expatriate talent in Dubai."

Asian markets dominate the top end of the rankings with Hong Kong, Taiwan, Singapore, South Korea and China (Beijing) ranked 3, 4, 5, 6 and 7. The lowest ranked Asian market is India at 14 (sharing this position with the UK, Australia, and the United States). In the Americas, Mexico (8), Brazil (9) and Argentina (10) outrank the United States (14) and Canada (20).

According to Niklaus Kobel, researcher at Mercer's Geneva office: "Marital status is still a major factor in determining local tax rates. The data highlights the fluctuation in tax rates applied according to an employee's income level and marital status. It is important to note that high tax rates do not necessarily mean less affluence."

Not all taxation systems vary according to marital status, however. Married employees in Brazil, India and Turkey have similar tax rates to single employees.

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