2022 International Tax Competitiveness Index: Europe has 8 of the top 10 in ranking

The 2022 International Tax Competitiveness Index was released. In accordance with the Tax Foundation, the objective of the index is to measure the extent to which a country’s tax system meets two important aspects of tax policy: competitiveness and neutrality. Of the “top-10” in ranking, eight countries are from the European continent, including the leader Estonia.

The structure of a country’s tax laws is a determining factor of its economic outlook. With well-structured tax laws, it is easier to boost the economy, generating enough revenue for the government’s priorities. However, a disorganized tax system can hinder economic decision-making and harm local economies.

The index helps to know whether or not a country needs reforms in its tax laws.

The COVID-19 pandemic has caused many countries to introduce temporary measures into their tax systems. Faced with receding revenues, countries have had to consider the best way to structure their tax systems in order to spur economic recovery and to increase revenues.

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Details of the International Tax Competitiveness Index

According to an article by the Tax Foundation, the competitive tax law keeps the marginal rate low. Companies can choose to invest in any country in the world to find the best return. This means that companies look for countries with lower investment tax rates to maximize their revenue.

Very high tax rates cause a country to lose investments, slowing down its economic growth. Furthermore, high marginal tax rates can discourage domestic investment and lead to tax evasion.

A competitive and neutral tax law promotes sustainable economic growth and attracts investments, generating sufficient revenue for the State’s priorities.

Learn the important aspects of Estonia, which was first in ranking

Estonia leads the ranking and has the best tax code in the OECD for the ninth consecutive year.

Four points of the country’s tax system stand out. The first is the 20% corporate tax, which only applies to distributed profits. Then the 20% personal income tax which does not apply to personal dividend income. Thirdly, property tax only applies to land value, not property or capital value. Finally, and very importantly, the country has a territorial tax system with 100% exemption of foreign profits of domestic companies from domestic taxation with few restrictions.

Text with information from: https://taxfoundation.org/2022-international-tax-competitiveness-index/

Written by Marcos Ferreira, Content Assistant to Drummond Advisors

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