If you could live anywhere in the world, wouldn’t you want to know the countries with the highest income taxes before moving? Perhaps, but that’s not the only question to ask. The most highly taxed places to live would depend not just on your income but also on your filing status. Furthermore, the countries with the highest taxes on high incomes – Portugal, Slovenia, Belgium, Finland and Sweden – are mostly different from the countries with the highest taxes on average income earners. (For more, see Which Countries Have the Highest Taxes on High Incomes?)
Whether you’re single or married with children also makes a difference. Denmark has some of the highest taxes in the world on both single and married taxpayers, but the other top four countries in each category are completely different, though they’re all in Europe. These data come from the Organisation for Economic Co-operation and Development (OECD), a forum that allows governments from 36 advanced and developing countries around the world, 25 of which are in Europe, to work together toward people’s economic and social well-being.
The 5 Countries with the Highest Income Taxes for Average-Earning Singles with No Children
First, let’s look at the countries with the highest all-in average personal income tax rates at the average wage for a single person with no children.
1. Belgium, 42.0%
Belgium, like many countries we’ll discuss here, has a progressive tax, which means that higher-income individuals pay more taxes than lower-income individuals do. Its top progressive rate is 50%. Income from property, work, investments and miscellaneous sources is all taxable. Capital gains tax rates depend on the type of capital. Employees also pay a social security tax of 13.07% of their income. The government allows deductions for business expenses, social contributions and 80% of alimony payments, and there is a personal allowance based on filing status.
2. Germany, 39.7%
Germany levies a progressive income and capital tax that caps out at 45%. Sources of taxable income include agriculture, forestry, business ownership, employment, self-employment, savings and investments, rental property and capital gains. The first EUR 801 in savings and investment income is not taxed, thanks to the saver’s allowance. There is a 25% withholding tax on interest and dividends and a 15% withholding tax on royalties.
Members of certain churches pay an 8% or 9% church tax, which is tax deductible. Church taxes are levied in many European countries. In some cases only church members are required to pay a percentage of income to the church to which they belong; in others all taxpayers pay a church tax, but have the option of paying it to the state instead of to a religious organization.
Income of up to EUR 8,652 is considered a personal allowance and is not taxed. Other deductions include a percentage of contributions to a statutory pension insurance plan; health insurance premiums; private accident, life, unemployment and disability insurance premiums; donations to registered charities; and up to EUR 6,000 per year in training for a future profession.
3. Denmark, 36.1%
Denmark’s progressive income tax tops out at 55.8%, and the average individual pays 45%. The Danes pay an 8% Danish labor market contribution tax, a 5% healthcare tax, 22.5% to 27.8% in municipal taxes, social security taxes of DKK 1,080 (USD 164) per year and capital gains taxes of 27% or 42%. There is a withholding tax of 27% on dividends and 25% on royalties.
Employment income, bonuses, fringe benefits, business income, fees, pensions, annuities, social security benefits, dividends, interest, capital gains and real estate rental income are all taxable. There is also a voluntary church tax of 0.43% to 1.40%.
Tax deductions are available for limited contributions to approved Danish pensions, unemployment insurance, interest on debt, charitable contributions, unreimbursed work travel and double households.
4. Austria, 34.9%
Austrians pay progressive taxes as high as 55% on earned income, which includes employment income and certain fringe benefits. Investment income and capital gains are taxed at 27.5%. White-collar employees contribute 18.07% of their income to social security, while blue-collar employees contribute 18.2%, subject to a ceiling of EUR 4,530.
Austria provides automatic tax credits based on the number of individuals in a household that earn income, as well as credits for children and travel to work. Certain work-related expenses and child-care expenses are tax deductible.
5. Hungary, 34.5%
Unlike other countries discussed in this article, Hungary assesses a flat personal income tax, not a progressive one, and the rate is 16%. This rate sounds relatively low, but as it applies to all income, it does not necessarily mean that Hungarians have a lower overall tax burden. Passive income from sources such as dividends, interest and property rentals is also taxed at 16%. Hungary provides deductions for professional training and business travel expenses, and families receive a deduction for each child. Hungary treats each spouse as a separate taxpayer. Social insurance contributions are 18.5% of income for employees.
How the U.S. Compares
The United States comes in at 25.6% in this category of average-earning singles with no children, giving it the 16th highest tax rate. The countries with the lowest all-in average personal income tax rates on single people with no children are Chile (7.0%), Mexico (10.3%) and Korea (13.8%).
The 5 Countries with the Highest Income Taxes for Average-Earning Married Couples With Two Children and One Working Spouse
The countries with the highest average personal income taxes are different for families with two children. Only Denmark makes the top five in both this category and the single with no children category.
1. Turkey, 25.8%
Turkey’s income tax rates range from 15% to 35%. Turkey levies income tax on commercial, agricultural and professional activities; salaries and wages; income from immovable property; dividends, interest and royalties; and other income, including capital gains. Deductions are available for medical and educational expenses, pension and private health insurance expenses and certain donations.
2. Denmark, 25.3%
Because we covered Denmark’s tax rates in the previous section, here is some additional information about taxation in Denmark. Residents pay taxes on worldwide income, and spouses must file separately. Capital gains on a home sale are normally tax exempt. Most taxpayers get a personal allowance worth DKK 44,000 (USD 6,700) and an employment allowance. Individuals pay property taxes, and anyone other than a spouse who receives an inheritance pays an inheritance tax. Consumers pay value-added taxes on most goods and services.
3. Finland, 25.2%
Finland taxes its income earners at progressive rates that top out at 31.75%. Individuals also pay social insurance contributions and a public broadcasting tax. Finland levies income tax on salaries, wages, pensions and social benefits, as well as capital income from investments. Earned income is subject to national taxes, municipal taxes and church taxes.
4. Netherlands, 23.8%
The Netherlands categorizes all income as coming from one of three categories: 1) salaries, wages, benefits in kind, pensions and home ownership income; 2) enterprise income from substantial business holdings; 3) savings and investment income. Each category has its own deductions and tax rates, and general tax credits apply to net income after the three categories are totaled. Income is taxed at progressive rates of 36.5% to 52%. Social security taxes are included in these rates. Married couples must file jointly unless they have filed for divorce, and some unmarried couples must also file jointly.
5. Norway, 23.0%
Norway taxes residents on salaries, dividends, interest, royalties, real property, capital income and industrial, commercial and agricultural profits. Gains from the sale of a primary residence aren’t taxable after one year of ownership. Workers, employers and the state all contribute to social insurance that pays pension and medical benefits.
Residents receive personal deductions and an unlimited deduction for interest paid on debts. Child tax credits are only available for documented expenses for children younger than 12, subject to limits per child. Individuals younger than 34 who are saving to buy a house get income tax relief of 20% of the amount saved.
How the U.S. Compares
The United States comes in at 13.7% in this category, giving it the 21st highest tax rate. The countries with the lowest all-in average personal income tax rates on married single-earner couples with two children are Ireland (–0.3%), the Czech Republic (1.7%) and Switzerland (4.2%). There’s quite a disparity between the highest and lowest income tax burdens among OECD countries.
The Bottom Line
Income tax burdens vary so much by country because of the rates at which each country funds social insurance programs such as old age pensions and health care. In some countries, such as the Netherlands, social insurance taxes are significantly higher than basic income taxes. Each country also provides different levels of benefits to its citizens, and individuals get different returns on the sums they pay into social insurance programs based on personal factors including income, age and health status.
Different countries also put taxpayers into different brackets based on their income level, marriage status and number of dependents. So just because a country has an especially high or low overall income tax rate doesn’t tell you much about how you would fare in that country with all the circumstances that make up your unique situation. Furthermore, you might think a country’s high taxes are a valuable trade-off if you receive lots of social insurance benefits, your standard of living is high and you think the government uses your tax dollars wisely.