Which are the countries with the top tax rates on high incomes, and why does it matter? Some people believe that placing high tax rates on the wealthy helps to redistribute income throughout society, thereby increasing equality and ensuring that the less well-off have decent housing, health care, and enough to eat.
Others believe that high taxes on wealthy individuals discourage them from working and investing as much as they might at lower tax rates – and that this could result in a reduction of these two activities that benefit society by leading to advances in technology, medicine and other areas that improve living standards for everyone.
5 Countries With the Top Tax Rates on High Incomes
Regardless of which theory resonates with you, there’s no question that tax rates affect the wealthy’s decisions about where and how to live, work and invest, including their activities in the countries with the top marginal tax rates on individuals. The rates shown here include both personal income taxes and employee social security contributions, based on the latest Organization for Economic Co-operation and Development (OECD) data. We then break down how various taxes are assessed on the wealthy in each country.
Portugal’s national government taxes employment income, and business and professional income, at progressive rates of up to 48% and investment income, real estate income and increases in net worth and pensions at a flat rate of 28%. Employees pay social security taxes of 11%, and employers pay another 23.75%. In 2016, Portugal levied an additional 3.5% tax on income above the minimum wage.
Real estate is taxed at the municipal level in the form of property taxes and transfer taxes. If you sell your primary residence in Portugal, your gains are tax exempt if you use the proceeds to buy another permanent residence in Portugal or another state belonging to the European Union.
Portugal allows deductions for health and education expenses and provides personal tax credits based on the number of family members. Spouses, descendants, and ancestors do not have to pay taxes on gifts and inheritances, but there is a 10% tax on other recipients. Portugal does not assess a net wealth or net worth tax.
Slovenia’s national government taxes employment income, business income, income from basic agriculture and forestry, income from rents and royalties, income from capital (dividends, interest, and capital gains) and other income. The highest progressive tax rate is 50%. Employees pay social security taxes of 22.1% on gross income, and employers kick in 16.1%.
Income from capital, certain business activities, and rental property are taxed in separate buckets and at sometimes-different rates from all other sources of income. Capital gains are taxed at 25%, but the longer the holding period, the lower the rate. After holding the investment for five years, the rate drops by 10%, then by another 5% for every five years thereafter. By holding an investment for 20 years, an individual can avoid paying capital gains tax on that investment altogether.
Slovenia provides an income tax allowance for individuals, with additional allowances for being disabled or having dependents. Property owners pay taxes in certain areas based on several factors. Slovenia levies inheritance and gift taxes at progressive rates based on the property’s worth and the recipient’s relationship with the deceased or the donor. There is no net wealth or net worth tax.
Belgium levies both national and regional income taxes on its residents. Individuals pay taxes on movable and immovable property, professional income and miscellaneous income. The highest progressive tax rate is 50%, which may be increased further by communal surcharges of 0% to 9%. The social security tax rate on employees is 13.07% of gross income.
Individual capital gains from shares categorized as professional income are typically taxed at the ordinary individual income tax rate, but most capital gains from individuals not engaged in business activities are not taxed. Belgium allows tax deductions for business expenses, social contributions, and alimony payments. The country also provides a personal allowance based on whether the taxpayer is single, has dependent children and so on. Tax credits are available for charitable donations, certain life insurance policies, pension plan contributions, real estate investments, and other items.
Depending on the region, real estate acquisition is taxed at 10% or 12.5%; there are also annual property taxes. Inheritance taxes apply even to spouses, legal cohabitants and descendants; the rate can be as high as 30% for these beneficiaries. Unrelated beneficiaries and distant relatives may pay inheritance taxes as high as 80%. There is no net wealth or net worth tax.
In Finland, the tax authorities fill out residents’ tax returns for them. The country categorizes all individual income in one of two ways: Earned income is subject to national, municipal, and social security taxes; it is also subject to church taxes for members of one of Finland’s two national churches. National income tax has progressive rates as high as 31.5%; the first 16,900 euros is exempt from national income tax but not from municipal income tax, church tax or social security tax.
Municipal taxes are also applied progressively and max out at 22.5%, and the church tax is 1% to 2.2%.
Income from capital has two tax rates: 30% on income up to 30,000 euros and 34% on income exceeding that amount. Transfers of Finnish securities incur a 1.6% tax. After deducting the pension income allowance, pension income exceeding 47,000 euros is subject to a 5.85% surtax. Finnish workers have withheld from their gross pay pension insurance contributions of 6.15%, plus 1.60% for unemployment insurance, as well as 1.58% for health insurance premiums if their annual income is 14,000 euros or higher.
Finland allows deductions to earned income for work-related expenses, such as commuting costs, professional literature, tools and equipment, and certain travel expenses. It also allows deductions to capital income, such as home mortgage interest. Real property is taxed at 0.41% to 6.0% at the municipal level, depending on location and property type. There is also a 4% property transfer tax. Inheritance taxes depend on the relationship between the deceased and the inheritor but can be as high as 33%. There is no net wealth or net worth tax.
Sweden’s national government taxes business income, employment income (which has a top progressive rate of 57%) and capital income (a category that includes capital gains, dividends, and interest, taxed at 30%). Employers contribute 31.42% of their employees’ wages to social security.
There are personal allowances against income, and deductions are available for the costs of acquiring or maintaining income, work-related travel expenses, and increases in living expenses from work-related travel or the maintenance of more than one home. There are also tax deductions for housekeeping and home maintenance expenses. In real estate transactions, the purchaser pays a real estate stamp duty of 1.5% on the property’s market or transfer value; there are also municipal property taxes. Sweden has no inheritance or estate tax and no net worth or net wealth tax.
Top Tax Rates in Other OECD Countries
The top tax rates are quite high in a number of other OECD countries as well. Coming in with honorable mentions at six through 10 are Japan (56.2%), Denmark (55.8%), France (55.0%), the Netherlands (52.1%) and Ireland (51.0%). The United States is a distant 17 on the list, with a rate of 48.6%.
The Bottom Line
For individuals who earn high incomes from working or investing in Portugal, Slovenia, Belgium, Finland or Sweden, the tax rate percentage on income exceeding a certain threshold can reach into the high 50s and low 60s. Individual taxes on income and investments, plus mandatory contributions to social security, create these high rates.
In some countries and situations, the wealthy also pay significant taxes on real estate and inherited wealth. Depending on which economist or politician you ask, these high tax rates are either a significant help to the country as a whole or a hindrance to its economic progress. (For related insight, read more about countries with the highest and lowest corporate tax rates.)