If you could live anywhere in the world, wouldn’t you want to know the potential income taxes before moving and how that compared to the U.S. tax rates? Perhaps, but that’s not the only question to ask. Your filing status of single or married is also a factor in determining which locations might have the highest income taxes. What's more, the countries with the highest taxes on high incomes—Slovenia, Belgium, Sweden, Finland, and Portugal—are mostly different from the countries with the highest taxes on average income earners.
Being married with children also can make 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 of the two categories are completely different, though they’re all in Europe.
This article focuses on the taxes you could expect, depending on whether you are single or married. This data (the most recent available from 2019) comes from the Organisation for Economic Co-operation and Development (OECD), a forum that allows governments from 37 advanced and developing countries around the world—25 of which are in Europe—to work together toward people’s economic and social well-being.
- Income tax burdens vary by country based on how much is paid into social insurance programs, as well as specifications such as age and homeowner status.
- There is a disparity between the highest and lowest income tax burdens among OECD countries—a list that skews heavily toward European countries only.
- Different countries also put taxpayers into different brackets based on their income level, marital status, and number of dependents.
- Many European countries are offering expat tax incentives to reside in their country.
- Most countries have a double taxation treaty with the United States, ensuring you are not taxed twice on certain types of income.
Countries With the Highest Income Tax for Single People
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. The top five are Germany (38.9%), Belgium (38.4%), Lithuania (35.8%), Denmark (35.3%), and Slovenia (33.7%).
Germany has a progressive tax, which means that higher-income individuals pay more taxes than lower-income individuals. The country levies a progressive income and capital tax that caps out at 45%. Sources of taxable income include agriculture, forestry, business ownership, self-employment, employment, savings and investments, rental property, capital gains, and other income. The first €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.
Church tax in Germany is fully deductible, and the government allows for charitable contributions to be deducted as long as they are under 20% of the individual's adjusted gross income (AGI). Church taxes are levied in many other European countries.
Income of up to €9,744 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 €6,000 per year in training for a future profession.
Belgium's top progressive tax 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 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. For 2023, the allowance is €9,270.
Expats in Belgium were given new rules in January of 2022. They must have a minimum AGI of €75,000. The government allows for a maximum of 30% of the AGI as a tax-free allowance. It is a five-year program with the option to be extended.
Lithuania's taxes its income earners at rates that top out at 32% for earnings over €90,246. Personal income tax until that AGI is 20%. Taxable income includes employment, commercial activities, royalties, leasing assets, and "other."
Income unrelated to employment—including royalties, interest, and gains from the sale of property—is taxed at a rate of 15% or 20%, as are capital gains. Dividends are subject to a tax rate of 15%. There is no withholding tax charged on interest unless the individual in question isn't a citizen of Lithuania, in which case the rate is 15%.
Lithuania seems to have given a huge break for certain earners, as the top income tax bracket was raised quite a bit. From 2022, that threshold is €90,246. In 2021, it was €81,162. All earnings over this amount are also subject to a lower social security tax of 6.98%.
Denmark’s progressive income tax tops out at 55.9%. The Danes pay an 8% Danish labor market contribution tax, an 8% healthcare tax, an average of 24.98% in municipal taxes, social security taxes of 1,135.8 kr. ($167.06) per year and capital gains taxes pegged to the normal personal income tax rate. There is an inheritance and gift tax rate, both of 15%.
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 0.70%.
Tax deductions are available for limited contributions to approved Danish pensions, unemployment insurance, interest on the debt, charitable contributions, unreimbursed work travel, and double households.There is an expat scheme in Denmark, but considering it still requires payment of the labor tax, the rate for those who meet the special expat requirements is 32.84%.
Slovenia levies an individual income tax that ranges from 16% to 45%. Residents are taxed on their worldwide income, while non-residents will only have their Slovenia-sourced income taxed. Six types of income are subject to taxation: employment; business; agriculture and forestry; rent and royalties; dividends, interest, and capital gains; and "other." A withholding tax of 15% is levied against rental income for 2022. In 2021, that rate was nearly double, at 27.5%.
The employee pays the lion's share of pension and disability insurance at 15.50%. Health insurance is roughly equal between employer and employee, at 6.36%. Social security as a whole in Slovenia totals 22.10%.
Capital gains, interest, and dividends are taxed at a flat rate of 25%. However, tax residents are allowed to choose between this flat rate or the progressive tax rates.
How the U.S. Compares
The United States comes in at 24.4% in this category of average-earning singles with no children, giving it the 22nd highest tax rate. The countries with the lowest all-in average personal income tax rates on single people with no children are Chile (7%), Mexico (10.8%), and Korea (15%).
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.
Countries With the Highest Income Tax for Married People
For one-earner married families with two children, the countries with the highest average personal income taxes are different. Lithuania (35.8%) and Denmark (31.4%) make the top five in both this category and the single-with-no-children category. Alongside Lithuania and Denmark, Finland (30.2%), the Netherlands (27.7%), and Norway (27.5%) are in the top five.
Here is some information about taxation in Lithuania, in addition to the details in the taxes for single people section above. Residents are taxed on their worldwide income, while non-residents are subject to a tax on their Lithuanian-sourced income and income from activities conducted through a fixed base in Lithuania. Residents of Lithuania are permitted an annual tax-exempt amount up to €4,800, which diminishes as their salary rises and is based on that amount minus 0.18x, where x is the annual income minus twelve monthly minimum wages of the current calendar year. Consumers also pay value-added taxes on most goods and services at a rate of 21%.
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.
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 46,200 kr. ($6,802.22) and an employment allowance. Individuals pay property taxes, and anyone other than a spouse who receives an inheritance pays an inheritance tax. Consumers also pay value-added taxes on most goods and services at a rate of 25%.
Finland taxes its income earners at progressive rates that top out at 31.25%. Individuals 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.
5. The Netherlands
The Netherlands categorizes all income as coming from one of three categories: 1) salaries, wages, benefits in kind, pensions, and homeownership 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 37.35 to 49.5%. 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.
U.S. Tax Rate for Married Couples
The United States comes in at 12.6% in this category, giving it the 31st highest tax rate. The countries with the lowest all-in average personal income tax rates on married single-earner couples with two children are the Czech Republic (6.5%), Chile (7%), and Switzerland (10.7%). There’s quite a disparity between the highest and lowest income tax burdens among OECD countries.
Germany, Belgium, Lithuania, Denmark, and Slovenia have the highest income tax for singles—while Lithuania (again), Norway, Denmark (again), Finland, and the Netherlands have the highest income tax for married couples with two children.
What Countries Have the Lowest Personal Income Taxes?
Chile at 7%, Mexico at 10.8%, Korea at 15%, Estonia at 15.6%, and Switzerland at 17.1% have the lowest all-in income taxes for single filers with no children. The following five, is order of ascending income taxes are Israel, New Zealand, Spain, Japan, and Canada.
What Is a Tax Haven Country?
A tax haven country is a country where an employee or, more commonly a business owner, can lower their tax burden or avoid paying taxes altogether. This is extremely difficult to do if you are a salaried employee, but those who own a business and pay themselves through dividends or a salary from that business, and are able to register that business in a tax haven, may be able to legally dodge their tax liability. Common tax havens are the British Virgin Islands, Bermuda, Guam, Taiwan, and Jersey. If you are considering this strategy, work with a cross-border CPA who will ensure everything is done legally.
What Are the Double Taxation Rules?
Double taxation is something that is to be avoided if there any way possible to do so. It involves paying taxes twice on the same source of income. This typically occurs when someone has income from many different sources, often internationally. This can happen with a 401(k), as well as other tax-advantaged accounts such as individual retirement accounts (IRAs) and, as many United States business owners are aware, their limited liability company (LLC) income may be taxed twice as some foreign governments, such as Canada, do not recognize the business structure.
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 healthcare. In some countries, such as the Netherlands, social insurance taxes are significantly higher than basic income taxes.
Each country 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 like income, age, and health status.
Different countries put taxpayers into different brackets based on their income level, marital status, and the number of dependents. 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.