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17 November, 2021

Where Is The Most Tax-Friendly Environment For Business And Living In 2021

The Tax Foundation think tank has assessed the tax laws of the 37 countries that belong to the Organisation for Economic Co-operation and Development, or OECD.

The centre compiles the International Tax Competitiveness Index, or ITCI, each year to see which countries' tax policies are favourable to business and people's lives.

OECD taxes: the best tax systems
Photo: Adobe Stock

Estonia topped the ITCI Index for the eighth consecutive year. The main benefit of the state's tax policy is that legal entities do not pay income tax on retained earnings. This allows companies to reinvest it.

The VAT rate in the country varies from 0 to 20%, which is lower than in other EU countries. There is no annual property tax in Estonia. Citizens and residents pay only land tax: its rate depends on the region and is up to 2.5% of the cadastral value of the plot.

Top 10 OECD countries with the best tax systems

Place CountryScores
1 Estonia100
2 Latvia85,1
3 New Zealand82,3
4 Switzerland78,4
5 Luxembourg76,5
6 Lithuania76,5
7 Czech Republic75,5
8 Sweden72,9
9 Australia71,3
10 Norway70,6

Latvia came second in the index: local companies, just like Estonian companies, do not pay income tax on retained earnings. Therefore, they can reinvest it. Companies also get a deduction for property tax. On the downside, the national average VAT rate is much higher than in other OECD countries.

New Zealand rounds out the top three. The government allows companies to carry forward losses to the next year, which reduces the tax burden. There is no property tax in the country, owners only pay land tax. Profits from the sale of real estate are also not taxed.

The pros and cons of the OECD countries' tax laws are explained in more detail in a Tax Foundation report.

How to obtain a residence permit or citizenship by investment in ranked countries

Six countries in the ITCI Index have investment programmes: foreigners invest in a country's economy and obtain a residence permit or second citizenship.

Each country offers one or more investment options, such as a non-refundable contribution to a public fund, the purchase of real estate or bonds, investment in a business or the creation of jobs for residents.

Ranking of countries with investment programmes

PlaceCountry and statusProgramme investment
4 Residence permit in SwitzerlandFrom 450,000 ₣ per year
17 Turkish CitizenshipFrom $250,000
18 Residence permit in AustriaFrom €100,000
22 Residence permit in the UKFrom £2 million
29 Residence permit in GreeceFrom €250,000
34 Residence permit in PortugalFrom €250,000

Switzerland ranks in the top 5 for the large number of tax agreements signed: the country has ratified 93 DTAs with other states. The standard VAT rate in Switzerland is 8%. And there is a preferential rate of 2.5% on some goods, such as medicines.

Turkey. The country has a territorial tax system: the income tax rate depends on the region and is calculated on a progressive scale from 15 to 35%. Foreign companies that open branches in Turkey only pay tax on income generated domestically.

Austria has signed 89 double taxation agreements. There are no estate, inheritance or wealth taxes in the country. But in 2020, Austria introduced a tax on digital services.

UK. Law firms pay an income tax rate of 19% ― lower than in other OECD countries. But tax on dividends is 38%, 14% higher than the average rate.

Portugal. Tax residents pay income tax on a progressive scale, while businesses can reduce their income tax rate to 5%. Only premium real estate is subject to wealth tax.

New tax residents are entitled to benefits for 10 years if they apply for Non-habitual Resident status.

Greece has signed DTA with only 57 countries. This is lower than the average number of agreements among OECD states. Greece has one of the lowest dividend income tax rates at 5%. The country's VAT, on the other hand, is high for Europe at 24%.

Residence permit in Switzerland for financially independent persons

Switzerland is known for its good environment. Many residents note that since moving to Switzerland have become more active and enjoy the outdoors more often

Greece residence permit for investment

Athens, Greece. Athens is ranked as the 29th best city to live and do business in. The country has a warm climate and 250 days of sunshine a year

Residence permit in Portugal for investment

Portugal is one of the best places to live in Europe. It has low crime rates, quality medicine, and a tolerant attitude towards newcomers.

Who does the ranking and how it is done

Tax Foundation  is an American non-profit organisation that has been studying states' tax policies since 1937. Its experts analyse the legislation of countries and interview their residents, compile reports and tell how taxes affect countries' economies and people's lives.

The Tax Competitiveness Index identifies the strengths and weaknesses of legislation in OECD countries. According to Tax Foundation experts, a state's tax system should be competitive and neutral.

Competitive tax legislation maintains a low marginal tax rate. That is, the incremental tax rate that residents pay for each additional dollar of income. If the tax rate is high, foreign investment inflows are reduced.

A neutral tax law seeks to collect the most revenue with the least economic distortions. For example, there are no exemptions for specific activities under such a tax policy.

The index looks at five types of taxes to determine the competitiveness and neutrality of the legislation:

  • corporate tax;
  • personal income tax;
  • sales tax;
  • property tax;
  • Out-of-country income tax.

Immigrant Invest is a licensed agent of government programmes that helps to obtain a second citizenship or residence permit by investments in European countries. If you want to move to Europe and optimise your taxes, seek advice from experts in investment programmes.

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Where Is The Most Tax-Friendly Environment For Business And Living In 2021