Tax Competitiveness Index 2022: Estonia’s tax system tops the ranking

Tax Foundation published its annual International Tax Competitiveness Index 2022 (ITCI). It seeks to measure the extent to which a country’s tax system adheres to two aspects of tax policy: competitiveness and neutrality. As the researchers emphasized, a competitive tax code means that one that keeps marginal tax rates low.

In 2022, for the ninth year in a row, Estonia has the best tax code in the Organization for Economic Co-operation and Development (OECD). Invest in Estonia provided detailed explanation why:

  • Estonia has no corporate income tax on reinvested and retained profits. This means that Estonia’s corporate income tax system allows companies to reinvest their profits tax-free.
  • It has a flat 20% tax on individual income. The tax is not applied in the case of distributed dividends that have already been taxed with a corporate income tax.
  • Its property tax applies only to the value of land, rather than to the value of real property or capital.
  • It has a territorial tax system that exempts 100% of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.
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Images: Tax Foundation

Latvia, New Zealand, Switzerland, Czech Republic are among the leaders of the International Tax Competitiveness Index 2022. More about the strengths and weaknesses of each country’s tax system you can read on the Tax Foundation website.

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ITCI Methodology

To measure whether a country’s tax system is neutral and competitive, the ITCI looks at more than 40 tax policy variables. These variables measure not only the level of tax rates, but also how taxes are structured. The Index looks at a country’s corporate taxes, individual income taxes, consumption taxes, property taxes, and the treatment of profits earned overseas.