Estonia has the most competitive tax system in the OECD – for the sixth year in a row

According to the Tax Foundation, Estonia has the most competitive tax system in the Organisation for Economic Co-operation and Development – a ranking the country has held for the last six years.

The Tax Foundation’s 2019 International Tax Competitiveness Index points out that Estonia ranks first overall, the same as in 2018, and for the sixth consecutive year. 

The foundation says Estonia’s strengths are that the country’s corporate income tax system only taxes distributed earnings, allowing companies to reinvest their profits tax-free; the VAT applies to a broad base and has a low compliance burden; and that property taxes in the country only apply to the value of land.

The Estonian tax system does have some weaknesses, though, according to the foundation, but they’re relatively insignificant. For example, the Tax Foundation points out that Estonia has tax treaties with just 58 countries, below the OECD average – which is 77 countries; Estonia’s territorial tax system is limited to European countries; and that Estonia’s Controlled Foreign Corporation rules are more stringent than the average OECD country.

Latvia and Lithuania third and fourth

The Tax Foundation’s International Tax Competitiveness Index measures the degree to which the 36 OECD countries’ tax systems promote competitiveness through low tax burdens on business investment and neutrality through a well-structured tax code. The index considers more than 40 variables across five categories: corporate taxes, individual taxes, consumption taxes, property taxes and international tax rules.

New Zealand ranks second in the index, after Estonia, and Estonia’s southern neighbours, Latvia and Lithuania, rank third and fourth, respectively. Switzerland ranks fifth.

The Tax Foundation is a Washington, DC-based think tank, founded in 1937, that collects data and publishes research studies on tax policies.

The Organisation for Economic Co-operation and Development is an intergovernmental economic organisation with 36 member countries, founded in 1961 to stimulate economic progress and world trade. It is a forum of countries describing themselves as committed to democracy and the market economy, providing a platform to compare policy experiences, seek answers to common problems, identify good practices and coordinate domestic and international policies of its members. Estonia has been an OECD member since December 2010.

Cover: A piggy bank in Estonian flag colours. The image is illustrative.

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