estonia’s tax system most competitive in the world

For the ninth year in a row, Estonia is first in International Tax Competitiveness

Beautiful snowy Tallinn

For the ninth year in a row, Estonia has topped the International Tax Competitiveness Index (ICTI) meaning Estonia’s tax system is the most competitive and neutral tax code of all OECD countries.

The Tax Foundation, the US-based tax policy non-profit and publisher of the ICTI, says that a competitive and neutral tax code “promotes sustainable economic growth and investment while raising sufficient revenue for government priorities”.

The ITCI looks at more than 40 tax policy variables to measure the strength of country tax codes. These include tax rates and structures of a country’s corporate taxes, individual income taxes, consumption taxes, property taxes, as well as the treatment of profits earned overseas. Interestingly, the Tax Foundation reviews and improves the methodology of the Index each year. This year, this included several changes to the treatment of corporate taxes, individual taxes, consumption taxes, and cross-border tax rules. This means that prior editions are not comparable to the 2022 results, making Estonia’s retention of the title even more remarkable.

Estonia's tax system tops International Tax Competitiveness Index
Estonia’s tax system tops the 2022 International Tax Competitiveness Index

Estonia’s top score in 2022 is driven by four features of its tax system:

  1. a 20% tax rate on corporate income that is only applied to distributed profits
  2. a flat 20% tax on individual income that does not apply to personal dividend income
  3. property tax applies only to the value of land, rather than to the value of real property or capital, and
  4. Estonia has a territorial tax system that exempts 100% of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.

It’s not just Estonian citizens and tax residents who benefit. E-residents also have the opportunity to take advantage of the country’s clear tax system, transparent business environment and efficient digital services.

Of course, running a cross-border business means getting to grips with the complex web of international taxation. Understanding what taxes to pay and where to pay them are key issues for e-residents, just as it is for any person running a company based in another country or operating a business across borders. While large multinationals might have the resources to optimise taxes across different jurisdictions, the growing pool of SMEs and freelancers going global probably don’t.

This is where Estonia’s clear tax system and network of 61 tax treaties can be a huge advantage for foreign entrepreneurs looking for a place to base their borderless business. For e-residents, this means that:

  • The country’s simple tax rules and uniform tax rates keep compliance costs low.
  • Tax filings take minimal time thanks to Estonia’s digital tax environment.
  • E-resident companies with dual tax residency or a permanent establishment in other countries should not be double-taxed.
  • E-residents can access a network of tax consultants with expertise in international conventions, the tax codes of Estonia and dozens of other countries, from the e-Residency Marketplace.

With nine years of topping the rankings and no sign of slowing down, one might say that Estonia’s number one ranking is almost as certain as taxes themselves!

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