As the deadline for tax filing grows closer and closer, plenty of Americans are preparing their returns and shaking their heads at just how much they owe in taxes. Particularly, if you’re in one of the top tax brackets, you might be seeing nearly four of every 10 dollars you earn headed to the federal government.
However, if you think America’s top tax rates are totally ridiculous, you might be surprised to learn the U.S. doesn’t have the highest — or lowest — taxes when compared with the rest of the world.
Click through to see the best and worst countries for taxes, starting with the least tax-friendly countries.
20 Least Tax-Friendly Countries
America’s top tax rate of 37 percent might seem high, but there are plenty of other countries with higher top tax rates than the United States.
Turkey is actually one of the 50 cheapest countries to live in, found a separate study, and its individual income tax rate is just 35 percent. However, Turkey’s indirect tax rate of 18 percent is higher than the norm due in part to its value-added tax (VAT) and a special consumption tax on certain products.
One of the most expensive countries to live in, Italy’s top earners pay over 40 percent of their income to taxes. But the variety of other revenue sources in the country makes for an indirect tax rate over 20 percent — which is higher than the average rate worldwide of 15 percent.
Scandinavian countries have a reputation for higher taxes to fund more social spending, so it’s no surprise that three of the 20 least tax-friendly nations are Nordic countries. Norway’s high individual rate (46.27 percent) and indirect tax rate (25 percent) both outweigh the relatively low social insurance employee taxes at a rate of just 8.2 percent.
17. Bosnia and Herzegovina
In a prime example of how much tax policies can differ, Bosnia and Herzegovina lands among the 20 least tax-friendly countries despite having a top income tax bracket of just 10 percent, less than a third of any other country on the list. It’s among the least tax-friendly nations due to the highest tax rate for social insurance payroll taxes at 31 percent.
The first country from the Western Hemisphere in the list, Argentina has an income tax burden that is relatively low, with top earners paying 35 percent of their wages to the government. Its indirect tax rate is a much heavier burden than average, though, at 21 percent.
If high taxes for the tiny European state of Luxembourg are restricting the country’s economy, it sure isn’t showing in the numbers. Luxembourg has the highest gross domestic product per capita in the world at over $100,000 per person, higher than the next country on the list (Switzerland) by almost a third.
Israel takes precisely half of its top earners’ income for taxes. But the country charges a 12 percent rate for social insurance taxes that’s relatively low.
Like neighboring Argentina, Chile’s top tax bracket of 35 percent is relatively low, but its social insurance payroll and indirect tax rates — 18.54 percent and 19 percent, respectively — increase the tax burden placed on its top earners.
The top income tax rate in Japan is a whopping 55.95 percent, the second highest on this list. And its population of over 126 million is the largest of the countries with the highest taxes in the world.
Portugal’s social insurance payroll taxes are relatively low, but it makes up for that with a top income tax rate of 48 percent and indirect taxation at a whopping 23 percent.
According to the Heritage Foundation’s Index of Economic Freedom, Finland has the highest level of taxation and government expenditures as a percentage of nominal GDP of any country appearing on this list at 44 percent and 57.1 percent, respectively.
Belgium’s tax burden is boosted by its top income tax rate of an even 50 percent as well as its indirect taxation rate of 21 percent. That said, the country’s social insurance taxes are lower than most at just 13.07 percent.
One might wonder how Greece landed in such severe debt problems a few years ago with a top tax rate of 45 percent and additional indirect taxation of 24 percent. But the reality might be that relatively little of that is actually getting paid. Greece is famous for having high levels of tax evasion.
Sweden’s social insurance payroll taxes are just 7 percent, the lowest rate of the least tax-friendly countries. But it has the highest top income tax rate at 61.85 percent.
Croatia might be gaining in fame as the location where much of “Game of Thrones” is shot, but its inhabitants could feel like the government is raking in taxes faster than the Iron Bank. Top income tax rates are just 36 percent, but indirect taxation more than makes up for that with its 25 percent rate.
Uruguay is another country that has high taxes but a relatively low top income tax rate. Top earners in Uruguay only pay 36 percent toward income taxes, but they’ll get hit hard by social insurance payroll tax rates at 23.13 percent and indirect tax rates of about 22 percent.
Germany might have a relatively heavy tax burden on top earners, but that certainly doesn’t appear to be hindering its economy too severely as it has the fourth-highest GDP in the world.
Two of the four countries where German is spoken by the majority of its people are in the top five for being least tax-friendly, with neighbors Austria and Germany coming in at No. 3 and 4, respectively.
Slovenia represents the third and final Balkan nation among the 20 least tax-friendly. Unlike Bosnia and Herzegovina and Croatia, though, Slovenia’s top income tax rate of 50 percent is among the higher rates on the list.
1. The Netherlands
Holland might be the country to avoid if you’re a top earner: The Dutch tax system takes a 52 percent bite out of your income and another 27.65 percent in social insurance payroll taxes, both among the highest out there. Interesting, the Netherlands is also considered one of the world’s best tax havens.
20 Most Tax-Friendly Countries
The U.S. is actually one of the Organization for Economic Cooperation and Development (OECD) nations paying the smallest proportion of its GDP in taxes. However, there are plenty of countries out there that are more tax-friendly.
Did You Know? These 17 Countries Might Be the Best for Taxes
20. Trinidad and Tobago
Located off the coast of Venezuela, the dual-island country of Trinidad and Tobago isn’t just a place to vacation away from your difficult work life — living there can mean a vacation from higher taxes, with social insurance payroll taxes taking under 4 percent of your income.
The tiny island nation of Fiji has fewer than 1 million residents, but top earners there are probably happy with the fact that just one in five dollars they earn goes to income taxes — not to mention the fact that they’re living in Fiji.
Estonians actually pay a relatively high rate of 20 percent on their indirect taxation. But the 1.6 percent tax rate for social insurance payroll taxes pushes them up the rankings of the most tax-friendly.
Who knows why island life might be conducive to a low-tax environment, but the 20 most tax-friendly countries include six island nations, compared to just one among the 20 least tax-friendly (Japan). The 2 percent rate for social insurance payroll taxes in Indonesia helps make it one of those six.
16. Sri Lanka
The highest income bracket in Sri Lanka pays just 16 percent of earnings in income taxes each year.
Ukraine might have relatively high rates of indirect taxation at 20 percent, but its top income tax bracket is just 18 percent. And, the country features no employee taxes for social insurance.
The southern African nation of Botswana still collects a quarter of top earners’ income in individual taxes, but it has no social insurance payroll taxes and a modest indirect tax rate of just 12 percent, putting it among the 20 most tax-friendly.
This tiny island nation in the Indian Ocean, just west of Madagascar, has a little over 1.2 million residents. The people living there have a modest top income tax bracket of 15 percent but a downright tiny social insurance payroll tax rate of just 3 percent.
Plenty of former member states of the USSR appear to presently favor approaches to taxes that don’t target top earners. Belarus is one of four former Soviet Republics to appear among the 20 most tax-friendly.
If there’s one geographical region that’s the most tax-friendly, though, it’s probably the Middle East: Syria is just the first of seven countries on or near the Arab peninsula that are also among the 20 most tax-friendly, including six of the top 10.
Both Syria and Lebanon, members of the 20 most tax-friendly countries, share a border with Israel, which is No. 14 on the list of the least tax-friendly nations.
The fact that Russia fosters a tax environment that’s relatively friendly to top earners might be reflected in the fact that Forbes recognizes Moscow as the city with the third-most billionaires living in it.
Yemen has low tax rates across the board, with a top income tax bracket of 15 percent, social insurance payroll taxes of just 6 percent and indirect tax rates at a modest 5 percent.
Guatemala’s microscopic income taxes, with a top bracket of just 7 percent, are reflected in the fact that it has the world’s third-lowest — and this list’s lowest — level of government expenditures as a percentage of nominal GDP.
Can You Guess: Does Your State Have a Higher GDP Than These Countries?
Iraqis have relatively low income tax rates, with the top rate at just 15 percent. However, its position on this list is driven more by the 5 percent rate on social insurance payroll taxes and the lack of any indirect taxation.
The mountainous, oil-rich former Soviet republic of Kazakhstan is the largest completely landlocked country by area in the world. Citizens pay an indirect tax rate of 12 percent, relatively high among the country’s peers on this list, but it has no social insurance payroll taxes and a top income tax rate of just 10 percent.
The tremendous oil wealth of the Persian Gulf nation of Kuwait might be helping keep its taxes low. At just 1.4 percent of GDP, Kuwait has the lowest total tax burden proportional to its economic output of anywhere in the world.
Life in the Caribbean might already be enviable for top earners, with its beautiful beaches and sunny weather. In the Bahamas, you can add low taxes to that list, with the island nation being one of the four countries on this list that have no income taxes.
2. United Arab Emirates
The United Arab Emirates is at the top of this list for one good reason: Neither it nor the No. 1 country has any income, social insurance payroll or indirect taxes — the only two countries in the world with zero percent rates in all three.
Qatar’s near-complete lack of taxes might be helping the country boost its economy. Qatar’s GDP per capita of just over $60,000 per person is the highest on the list of the most tax-friendly countries and the seventh highest in the world.
Keep reading to see the most and least tax-friendly states for retirees.
Methodology: GOBankingRates compared the tax policies of every country in the world as provided by prominent auditing firm KPMG to determine the best and worst places to live if you’re looking to avoid paying taxes. The study focused on the top individual income tax bracket as well as the rates for social insurance employee taxes, i.e., payroll taxes, and any indirect taxes like a sales tax or a value-added tax (VAT). Each factor was scored and then weighted to determine which nation’s overall approach is hitting its wealthiest residents the hardest and the lightest.
About the Author
Joel Anderson is a business and finance writer with over a decade of experience writing about the wide world of finance. Based in Los Angeles, he specializes in writing about the financial markets, stocks, macroeconomic concepts and focuses on helping make complex financial concepts digestible for the retail investor.