This article will examine the 15 countries that have the the highest taxes on high incomes. You can skip our detailed analysis and head straight to our article on 5 Countries With The Highest Taxes on High Incomes.
Taxation is a fundamental pillar of modern societies, enabling governments to generate revenue and fund essential public services. Among the various forms of taxes, high-income taxes play a pivotal role in addressing income inequality and ensuring a fair distribution of wealth. These taxes, levied on individuals with significant earnings, serve as a means for governments to secure funds for social welfare programs, infrastructure development, and other public expenditures.
According to theTax Foundation's analysis, the highest-earning Americans bear the greatest tax burden in the US when considering combined federal, state, and local taxes. The top quintile, representing individuals earning $130,001 or more annually, contributed a substantial $3.23 trillion in taxes.
In contrast, the bottom quintile, comprising individuals earning less than $25,000 annually, paid significantly less, totalling $142 billion in taxes. This disparity in tax payments highlights the progressive nature of the U.S. tax system, where higher-income individuals contribute a significant portion of the nation's tax revenue.
Why fairer progressive taxation is the need of the hour?
The 2017 Tax Cuts and Jobs Act (TCJA) significantly changed US tax laws, primarily benefiting high-income individuals. It reduced the top tax rate from39.6% to 37% for couples earning over $600,000 or individuals earning over $500,000. Pass-through businesses were granted a 20% income deduction, predominantly benefiting high-income individuals.
The TCJA also weakened the Alternative Minimum Tax (AMT) and doubled the tax-free exemption for wealth transfer from $11 million to $25.8 million. These changes heavily favoured the wealthiest Americans, with the top 0.1% receiving an average tax cut of $193,380, while middle-income households saw an average reduction of $930.
While the TCJA is set to expire in 2025, discussions regarding its extension are ongoing. This highlights the importance of implementing a fairer progressive taxation system to ensure a more equitable distribution of tax burdens. President Joe Biden has proposed tax reforms to address these disparities and promote a more just tax code.
Global trends observed in taxation
Digital Reporting
In 2023, the trend of implementing digital reporting requirements will continue to strengthen, impacting businesses globally. The expansion will focus on three main systems:
a)SAF-T, which involves exchanging tax data in XML format.
b)E-invoicing would standardize invoice transmission in XML format, and
c)Real-time reporting, which would mean automatically submitting tax data to tax authorities in real-time.
Countries like Portugal, Romania, and Italy are mandating these digital reporting measures, while others like France, Spain, and Germany are also moving towards implementation. This ongoing shift highlights the increasing significance of digitalization and its implications for businesses and tax professionals worldwide.
Frequent VAT changes
Some countries have implemented changes to VAT rates, such as Finland reducing the rate for electricity supply and Singapore increasing the standard rate. Others have introduced new VAT regimes like Suriname, replacing its turnover tax regime with a 10% standard VAT rate. Additionally, certain countries have adjusted specific sectors, such as Tunisia applying a higher VAT rate to non-commercial professions.
Overall, this demonstrates a dynamic landscape where governments are actively recalibrating VAT systems to optimize revenue and address economic challenges like inflation with efforts to align with international standards.
Simplifying Tax Filing and Enhancing Compliance - Digital Transformation
Governments worldwide increasingly adopt digital transformation in tax administrations to enhance tax compliance, collect revenue, and simplify tax filing processes. The global volume of data from digital sources is projected to nearly triple from 2020 to 2024, driven by the rise of big data.
E-commerce is also growing rapidly, projected to expand 24% from 2020 to 2025, becoming a significant part of the tax base. The use ofcashless payments and mobile devices is further fueling this trend. Digitalization not only eases administrative burdens for tax authorities but also simplifies procedures and reduces compliance costs for taxpayers. Research shows a potential19% reduction in compliance costs in certain countries.
It is important to highlight that companies like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG) demonstrate the evolving tax landscape for multinational companies operating globally. They address the need for effective tax planning and compliance in an increasingly complex regulatory environment.
For instance, Microsoft Corporation (NASDAQ:MSFT) and The Unilever Group (NYSE:UL) have raised concerns about double taxation and withholding taxes in the OECD consultation onpillar one
, emphasizing the need to ensure taxpayers are not subjected to additional levies and that Amount A accurately allocates residual profits.
15 Countries That Have The Highest Taxes On High Incomes
Our methodology
We ranked the 15 countries that have the highest taxes on high incomes based on the top tax rate of the highest income brackets observed in 2023. The information has been gathered from reputable sources of PWC Tax Summaries for each individual country. All the countries listed observe progressive taxation structures. They are presented in ascending order, starting with the countries with the lowest tax rates, and progressing to the ones with the highest tax rates.
15. Germany
Top income tax rate: 42%
To address the issue of cold progression, which is the additional tax burden resulting from rising prices, adjustments are being made to the German income tax system. Starting in 2023, the top tax rate of 42 per cent will apply to annual incomes reaching $70,415, compared to the previous threshold of $65,692 in 2022.
To provide relief, the basic tax-free allowance (Grundfreibetrag) will also be raised from $11,600 in 2022 to $12,229 in 2023. Only the income exceeding the basic allowance will be subject to taxation. Due to the efficient tax collection structure in the country, Germany was placed on the second rank in the article on25 countries with the highest standard of living in 2023.
14. France
Top income tax rate: 45%
For households, income up to $12,082 is not subject to any tax, resulting in a 0% tax rate. In the next bracket, from $12,082 to $30,804, a tax rate of 11% is applied. As income increases, individuals and households earning above $189,455 face the highest tax rate of 45%.
13. China
Top income tax rate: 45%
The income tax system is structured on different levels based on taxable income amounts subject to cumulative withholding. The first level applies to incomes up to $5,210 and is subject to a withholding rate of 3%. For incomes ranging from $5,210 to $20,800, the second level comes into effect with a higher withholding rate of 10%.
12. Australia
Top income tax rate: 45%
An individual resident of Australia must pay income tax on their earnings from both Australian and foreign sources, with certain exceptions for temporary residents and specific types of foreign income and gains.
However, non-resident individuals are only liable for Australian income tax on income sourced within Australia, excluding interest, royalties, and dividends, which are generally subject to withholding tax. There are no additional surtaxes, alternative taxes, or other income taxes on personal income in Australia.
11. Iceland
Top income tax rate: 46.25%
In Ireland, personal income is a net income tax base with a progressive state and municipal tax. For annual income between $36,362 and $65,857, the income tax rate increases to 23.28%. The municipal tax remains the same at 14.67%. Consequently, the total tax rate for this range becomes 37.95%.
Hence, any income exceeding $65,857 falls into the highest income tax bracket. In this bracket, the income tax rate is 31.85%. The municipal tax rate of 14.67% continues to apply, resulting in a total tax rate of 46.25%.
10. Spain
Top income tax rate: 47%
In 2022, theSpanish Government proposed increasing the tax rates for "savings income," including dividends, interest, and capital gains. It aimed to introduce a new 27% rate for income between $224,800 and $337,200 and a new 28% rate for income exceeding this threshold.
Furthermore, taxpayers earning salaries below $16,800 (previously $15,680) will no longer be required to file a tax return, and effective tax rates will be reduced for salaries below $22,071.75.
9. Portugal
Top income tax rate: 48%
For tax purposes, Portugal residents are subject to progressive income tax rates ranging from 14.5% to 48% in 2023. This applies to their worldwide income.
On the other hand, non-residents are only obligated to pay income tax on income derived from Portuguese sources. This includes the portion of their earnings attributed to activities conducted in Portugal and remuneration paid by a Portuguese company or permanent establishment (PE). In 2023, non-residents are subject to a flat income tax rate of 25% on their taxableremuneration, regardless of the amount.
8. Netherlands
Top income tax rate: 49.5%
As part of theapproved 2023 Tax Plan in the Netherlands, the Dutch Ministry of Finance has introduced several tax changes. Notably, there will be a reduction in the basic rate of individual income tax from 37.07% to 36.93% for income up to $81,679. The top rate will remain unchanged at 49.5%. These new rates apply to individuals subject to state social security contributions.
7. Israel
Top income tax rate: 50%
Individuals in Israel are subject to graduated income tax rates reaching up to 47%. Moreover, a 3% surtax on annual taxable income surpasses $192,000, resulting in a maximum income tax rate of 50%. Non-residents are taxed at the same rates as residents. The annual tax brackets are determined by aggregating the monthly brackets, which are adjusted periodically to account for inflation.
6. Belgium
Top income tax rate: 50%
Belgium imposes income tax on its residents, regardless of their nationality, based on their worldwide income. Non-residents, on the other hand, are only taxed on income derived from sources within Belgium.
The calculation of personal income tax (PIT) involves determining the taxable income and applying progressive tax rates to different portions of that income. For the income year 2023, the federal tax rates in Belgium range from 0% to 50%.
