The Washington, DC, based Tax Foundation finds in its 2014 International Tax Competitiveness Index that Estonia has the most competitive tax system in the OECD (the Organisation for Economic Co-operation and Development).
The Tax Foundation’s International Tax Competitiveness Index (ITCI) measures the degree to which the 34 OECD countries’ tax systems promote competitiveness through low tax burdens on business investment and neutrality through a well-structured tax code. The ITCI considers more than forty variables across five categories: corporate taxes, consumption taxes, property taxes, individual taxes and international tax rules.
According to ITCI, Estonia currently has the most competitive tax code in the OECD. Its top score is driven by four positive features of its tax code. First, it has a 21 percent tax rate on corporate income that is only applied to distributed profits. Second, it has a flat 21 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 taxing the value of real property or capital. Finally, it has a territorial tax system that exempts 100 percent of the foreign profit earned by domestic corporations from domestic taxation with few restrictions.
The ITCI attempts to display not only which countries provide the best tax environment for investment but also the best tax environment to start and grow a business.
Estonia was followed by New Zealand, Switzerland, Sweden and Australia. France has the least competitive tax system out of 34 OECD countries.
The Tax Foundation is a non-partisan research think tank, established in 1937.
Cover photo: VisitEstonia.