According to the Tax Foundation, a US-based think tank, Estonia has the most competitive tax code among the countries belonging to the Organisation for Economic Co-operation and Development, or OECD.
Estonia has come on top of the annual tax competitiveness index fourth time in a row.
“Its top score is driven by four positive features of its tax code,” the Tax Foundation said. “First, it has a 20 per cent tax rate on corporate income that is only applied to distributed profits. Second, it has a flat 20 percent tax on individual income that does not apply to personal dividend income.”
“Third, its property tax applies only to the value of land, rather than to the value of real property or capital,” the think tank added. “Finally, it has a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.”
The Tax Foundation also noted that Estonia has a dividend tax rate of 0 per cent, while the OECD average is 24%.
Estonia is followed in the index by New Zealand, Switzerland and Latvia. Finland is ranked 19th.
The international tax competitiveness index seeks to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality. “A competitive tax code is one that keeps marginal tax rates low,” according to the think tank. “A neutral tax code is simply one that seeks to raise the most revenue with the fewest economic distortions. /—/ A tax code that is competitive and neutral promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.”
The Tax Foundation is a Washington, DC-based think tank, founded in 1937, that collects data and publishes research studies on tax policies.