Taxes are inevitable for anyone. But while taxes cannot be avoided, there are significant location-based differences. Globally, the average income tax is 29% per person. However, in many countries in the world, this can be substantially more.
In countries where taxes are among the highest in the world, taxpayers can find themselves paying almost half of their monthly income to the government. In some cases, this may have its benefits such as better-funded government loans in mixed-economy countries. However, there are also instances in which high tax rates are just a product of complex processes. If you’re hoping to navigate your taxes efficiently, here are some of the countries and tax systems to consider:
How Tax Systems Are Created
Not all tax systems are created equal. Generally, though, countries either have a more uniform or a more region-based approach.
An example of the latter can be seen in Canada and the United States. Canada has different tax laws based on the town and location. To illustrate, while Alberta has overall tax advantages, Ontario doesn’t. This is why tax calculators are often crucial in determining how your taxes will change simply based on the township. Similarly, in the U.S., states have varying tax rates that range from 0% to 13%. This can make it confusing since the U.S., as a whole, still uses national tax brackets. Thus, most Americans turn to accountants or request tax filing extensions in order to comply with their tax systems.
Alternatively, in Sweden, the system is more straightforward. Individuals living in the country can simply use a single wage calculator to find out how much of their salary will remain after deductions. Final fees are easy to determine because most of the country’s taxes don’t have region-based differences. Of course, different countries follow unique tax specifications. More often than not, though, they usually follow the two approaches explained above.
Countries With The Highest Taxes
Leading the list of countries with the highest income tax is the Ivory Coast. With a 60% tax rate, this West African country has a modest GDP of $61.35 billion. Despite being one of the most wealthy nations in its continent, its per head GDP is at least $20,000 less than the per-person GDP of the United States. The Ivory Coast’s taxes are based on worldwide income, salary tax, and national contributions.
With a 55% tax rate, Japan has the third-highest income taxes globally. Despite its small landmass and aging population, Japan is home to one of the world’s largest economies and purchasing powers. That said, Japan is also known for its very high cost of living. The expensive daily costs and tax rates are rationalized as the country’s means for providing pensions and healthcare to its senior citizens.
Scandinavian countries often top most lists of taxation systems given their high GDP. In terms of income taxes, though, Sweden ranks first with an average tax rate of 52.90%. Swedes’ taxes are comprised of personally paid income taxes along with social security contributions covered by employers. Despite this, Swedes enjoy tax exemptions that keep their level of income inequality low.
Just like its Canadian neighbor, the United States’ average income tax rate of 37% is less than its European peers. However, this is still considered a burdensome rate given its unfair tax burden distribution. Because the U.S. applies a graduated tax system (as discussed earlier), individuals may be paying fees outside of their means even if they’re on the lowest end of their bracket.
Canada is renowned for its free healthcare, free education, and other government aids. However, this does come at the cost of higher taxes. The country’s median income tax average of 33% may be smaller compared to others on the list, but the daily cost of living is substantially higher. This has caused 10 Canadian jurisdictions to fall into the top 12 least competitive tax jurisdictions between Canada and the U.S.
Why Tax Systems Matter
So why is it important to know about international tax systems? The answer is simple: globalization. In fact, doing business in foreign countries has long been popular among corporations who want to leverage corporate tax breaks. As global trade becomes commonplace, individuals are migrating to different countries, too. On an individual level, taxes can make a bigger impact on your financial well-being which is why they should be considered.
In general, countries with higher taxes may not seem too appealing. But it’s important to see that these rates have pros and cons which may complement your situation. Rather than writing off a country simply based on its national tax system, it’s better to consider why a country has a high tax rate and whether it’s worth it.