For the sixth year running, Estonia has been awarded the top spot in the OECD’s International Tax Competitiveness Index. The International Tax Competitiveness Index ranks countries’ tax codes according to two main factors: how competitive a tax code is in terms of keeping marginal tax rates low, and how effectively a tax code raises revenue without penalizing investors or favouring specific business activities unfairly.
In this context, tax competitiveness refers to how well a tax code encourages investment and promotes growth while raising sufficient funds for the necessary functions of government. Estonia’s tax code has once again come out on top for 2019.
The International Tax Competitiveness Index is based on the level of taxation, how taxes are structured, and numerous other factors, examining corporate tax, individual income tax, property tax, and taxation of profits earned abroad.
Estonia’s ranking in first place is a result of four particularly positive features of its tax code. Firstly, Estonia has a 20% tax rate on corporate income, applied to distributed profits only. Secondly, Estonia has a flat 20% tax on individual income, which does not apply to personal dividend income. Thirdly, Estonia’s property tax applies to the value of land only, not to the value of real estate or capital. Fourthly, all foreign profits earned by domestic corporations in Estonia are exempt from domestic taxation, with few restrictions.