CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Estonia Tops Tax Foundation's Tax Competitiveness Index

Estonia Tops Tax Foundation's Tax Competitiveness Index

by Mike Godfrey,, Washington

29 October 2018

Estonia has topped the Tax Foundation's International Tax Competitiveness Index for the fifth successive year, being deemed to have the "best tax code in the OECD."

The 2018 ITCI, published on October 23, 2018, seeks to measure the relative competitiveness and neutrality of each tax regime in the OECD grouping. It finds that the most competitive tax systems are the ones with the lowest marginal tax rates and the least amount of distortionary taxes.

"In today's globalized world, capital is highly mobile," the Tax Foundation said. "Businesses can choose to invest in any number of countries throughout the world to find the highest rate of return. This means that businesses will look for countries with lower tax rates on investment to maximize their after-tax rate of return. If a country's tax rate is too high, it will drive investment elsewhere, leading to slower economic growth. In addition, high marginal tax rates can lead to tax avoidance."

Citing research from the OECD, the Foundation said that corporate taxes are the most harmful for economic growth, with personal and consumption taxes being less detrimental, and immovable property taxes having the least impact on an economy.

The Foundation therefore attributes Estonia's top score in the 2018 index to four key factors: a 20 percent corporate tax that only applies to distributed profits; a flat 20 percent tax on individual income that does not apply to personal dividend income; a property tax that applies only to the value of land, rather than to the value of real property or capital; and a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.

Rounding out the top-ten in the 2018 ITCI are (in descending order): Latvia (2nd), New Zealand, Luxembourg, the Netherlands, Switzerland, Sweden, Australia, the Czech Republic, and Austria (10th).

France, which has a headline corporate tax of 33.33 percent, lies at the foot of the index, with the Tax Foundation observing that the country has not kept up with global trends towards lower and simpler taxes.

"Over the last few decades, France has introduced a number of reforms that have significantly increased marginal tax rates on work, saving, and investment. For example, France recently instituted a corporate income surtax, which joined other distortive taxes such as the financial transactions tax, a net wealth tax, and an inheritance tax," the Foundation noted.

While France plans to gradually lower its corporate tax to 25 percent over the next few years, the Foundation argued that "many more changes are necessary for France to have a competitive tax code."

Following the passage of the 2017 Tax Cuts and Jobs Act, which reduced the US headline federal corporate tax rate from 35 to 21 percent and improved capital investment expensing rules, the United States has improved its ranking from 28th place to 24th.

Belgium was another significant mover in the 2018 index after adopting a tax reform package that included a reduction in the statutory corporate tax and an increase the participation exemption from 95 to 100 percent. As a result, Belgium is ranked 19th in the 2018 ITCI, up from 25th in 2017.

TAGS: inheritance tax | tax | investment | business | Belgium | Netherlands | property tax | tax avoidance | Australia | Estonia | Latvia | Luxembourg | transfer pricing | tax rates | Austria | Czech Republic | France | New Zealand | Sweden | Switzerland | United States | Tax

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »