As a self-employed professional or business owner, thoughts always seem to turn to how much easier other countries appear to have it, particularly when the time to settle our tax bills comes along. Tax rates vary from country to country, and while the UK doesn’t have the highest rate, it certainly isn’t the lowest. It may be a far cry from the 95% supertax rate introduced by Prime Minister Harold Wilson’s Labour government in the 1960s, but settling that Self Assessment tax bill every January and July can be a bitter pill to swallow.
Tax allowances and rates based on each level of income differ, which makes analysing the tax rates of different countries particularly tricky. Here, we take a closer look at the practical tax rates faced around the world – the practical tax rate being what a professional earning the nation’s average wage would pay. Who knows, the findings might just influence a move abroad.
Professionals in countries like Denmark have the highest pre-tax salaries on the planet, but have a practical tax rate of 56%. In Denmark, those earning the average salary of just over £48,000 only take home £21,367. Some countries provide different tax rates depending on whether you’re single or married with children. Although Denmark doesn’t discriminate too much between single and married taxpayers, Investopedia revealed that all taxpayers must pay the following:
“The Danes pay an 8% Danish labor market contribution tax, a 5% healthcare tax, 22.5% to 27.8% in municipal taxes, social security taxes of DKK 1,080 (USD 155) per year and capital gains taxes of 27% or 42%. There is a 27% withholding tax on dividends and 25% on royalties. Employment income, bonuses, fringe benefits, business income, fees, pensions, annuities, social security benefits, dividends, interest, capital gains and real estate rental income are all taxable. There is also a voluntary church tax of 0.43% to 1.40%.”
Fellow Scandinavian country Sweden isn’t too far off Denmark’s tax rate high, with a practical tax rate of 52%. Finland, on the other hand, has a practical tax rate of just 23%.
With a 45% tax rate, meaning the average worker with a pre-tax salary of £36,087 takes home £19,848, Belgium currently holds the title for the highest tax rate in Western Europe. This top spot is closely followed by Austria (42% tax rate) and the Netherlands (41%), before dropping to Spain’s 30% practical tax rate. France and Germany also have tax rates of 30%, although professionals living in the latter country tend to earn the highest average salary. Portugal has a slightly lower rate of tax at 29%, with average salaries of £13,877 taking home £9,922.
The rest of the world
It seems professionals working in countries in the rest of the world get a better deal than those in the Nordics and Western Europe. Australians have a practical tax rate of just 21% and, with their average pre-tax salary equating to some £45,050, they take home just over £35,000 each year. New Zealand has it even lower at 19%, whilst workers in the USA enjoy a tax rate of just 18%.
You’ll also be keen to hear about the tax-free countries around the world. The Bahamas, The British Virgin Islands, Brunei, The Cayman Islands, Monaco, Oman, Turks and Caicos, and The United Arab Emirates are just some of the countries where workers enjoy 0% tax rates.
How does the UK compare?
Based on the average salary of the country’s workers, the UK doesn’t fare too badly in the rundown of practical tax rates. Its practical tax rate is 13%, based on the average salary earner making almost £35,000 per year and taking home £30,394. Being a contractor is one of the most tax efficient career opportunities out there and contractors are becoming more and more in demand for several reasons across various sectors.
Are you a contractor or small business owner looking ahead to January’s tax deadline? Filing your tax return early has its advantages, so don’t delay.