Estonia has the best tax code in the OECD

For the ninth consecutive year, Estonia has the best tax code among members of the Organization for Economic Co-operation and Development – known as the OECD – according to the International Tax Competitiveness Index 2022, compiled by Tax Foundation.

“Estonia’s top score is due to four positive features of its tax system. First, it has a 20% corporate income tax rate that only applies to distributed profits. Second, it has a flat 20% personal income tax that does not apply to personal dividend income,” the report states.

“Third, its property tax only applies to the value of land, rather than the value of real estate or capital. Finally, it has a territorial tax system that exempts 100% of foreign profits made by domestic companies from domestic tax, with few restrictions.

The report highlights some of the weaknesses of the Estonian tax system. For example, Estonia has tax treaties with only 61 countries, which is below the OECD average of 74 countries.

“Estonia’s territorial tax system is limited to European countries,” the report says as another weakness, adding that “Estonia’s thin capitalization rules are among the strictest in the OECD.”

Latvia has adopted the Estonian corporate tax system

According to the International Tax Competitiveness Index 2022, the tax systems of other leading countries receive high scores due to their excellence in one or more of the main tax categories.

“Latvia, which recently adopted the Estonian corporate tax system, also has a relatively efficient system for taxing labor income,” the report points out. Latvia is ranked second in the 2022 index.

New Zealand has the third best tax code among OECD members, Switzerland fourth and the Czech Republic fifth. Lithuania is eighth, Sweden 12th and Finland 20th.

The International Tax Competitiveness Index seeks to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality. It is compiled by the Tax Foundation, an American think tank based in Washington, DC. It was founded in 1937 by a group of businessmen to “supervise the tax and expenditure policies of government agencies”.