Estonia, EU – Baltic States, Good for Business, Latvia, Rating, Taxation

Estonia has been recognized as the most competitive tax system for the fifth year in a row. The third most competitive tax system among OECD members is New Zealand, followed by Luxembourg, the Netherlands, Switzerland, Sweden, Australia, the Czech Republic and Austria. The least competitive tax system is France.

Latvia in the rating ranks second with the overall score of 86 points, following Estonia that scored 100 points.

The authors of the index said that Estonia’s top score is driven by four positive features of its tax code. First, it has a 20% tax rate on corporate income that is only applied to distributed profits. Second, it has a flat 20% tax on individual income that does not apply to personal dividend income. Third, its property tax applies only to the value of land, rather than to the value of real property or capital. Finally, it has a territorial tax system that exempts 100% of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.

Latvia, which recently adopted the Estonian system for corporate taxation, also has a relatively efficient system for taxing labor. Last year Latvia ranked third in the index.

Assessing by category, Latvia ranked second in corporate tax rank, 27th among 35 OECD members in consumer tax rank, 6th in property tax rank, second in individual taxes rank, and fifth in international taxes rules rank.

To measure whether a country’s tax system is neutral and competitive, the index looks at more than 40 tax policy variables. These variables measure not only the level of taxes, but also how taxes are structured. The index looks at a country’s corporate taxes, individual income taxes, consumption taxes, property taxes, and the treatment of profits earned overseas. The index gives a comprehensive overview of how developed countries’ tax codes compare, explains why certain tax codes stand out as good or bad models for reform, and provides important insight into how to think about tax policy.

Latvia became an OECD member state on July 1, 2016, Estonia – in 2010, while Lithuania joined the organization in July 2018 and has not been included in the rating yet.