The 10 Countries With the Highest Income-Tax Rates

We're less than two months away from rolling over into 2014, which can mean only one thing -- it's time to start thinking about taxes once again.

Source: Philip Taylor, Flickr.

Taxes are a necessary evil that help to pay for life's basic necessities, such as education and transportation. They also help to fund Medicare and Social Security, which provide health care and income security for us when we get older and retire from our jobs. But they're also a burden that, if we had our choice, we'd rather not pay at all.

Today, courtesy of a CNBC report, we're going to look at 10 countries around the world that have the highest marginal income tax rates. We'll see where the United States stacks up on that list, and then afterwards I'll offer up some suggestion you can possibly implement that'll help you lower your taxes come April.

Here are the 10 countries with the highest income-tax rates: 

Country

Highest Marginal Tax Rate

Kicks In At ...

Aruba

58.95%

$165,000

Sweden

56.6%

$81,000

Denmark

55.4%

$76,000

Netherlands

52%

$72,500

Austria

50%

$80,000

Belgium

50%

$46,900

Japan

50%

$217,000

United Kingdom

50%

$231,000

Finland

49.2%

$91,000

Ireland

48%

$43,900

Source: CNBC, KPMG.

Notice a trend?
The big observation to make here is that Europe is the hotbed for income taxation among the most industrialized countries in the world. According to the 96-country study of highest marginal tax rates, eight of the top 10 countries are in Europe.

Why Europe, you might wonder? A lot of Europe's higher tax rates have to do with its austerity measures instituted over the past couple of years. Taxes are a constraint on European citizens -- ergo the tepid growth rates we've witnessed in the region -- but higher taxes are needed to balance certain European countries' budgets that were heavily in the red before the recession. In all likelihood, Europe's high taxes are here to stay for a long time.

Honestly, Aruba is the only anomaly on this list, with the world's leading income-tax rate of nearly 59%. However, residents of Aruba enjoy an above-average standard of living and generally low unemployment rates, which can make up for what appears to be a very high marginal income tax rate.

We have it made by comparison
The United States ranked only 23rd, according to KPMG, which conducted the 96-country study last year. Since then, marginal tax rates for the wealthiest individuals, those bringing in more than $400,000 per year, have risen from the 35% threshold that KPMG calculated to 39.6%. Still, this is well off even Ireland's 48% marginal tax rate in 10th place.

Source: Tax Credits, Flickr.

In other words, we may loathe paying our taxes, but we really have no cause to complain, given that many European countries require a higher tax rate from their citizens and at a considerably lower threshold -- like Belgium, which kicks in a 50% marginal tax rate at just $46,900. Our investment income taxation is also considerably lower than certain countries. Whereas we can pay 15% on long-term capital gains, residents of Denmark will pay anywhere from 28% to 42% on capital gains, and in some special situations even as much as 51.5%!

Ways you can lower your taxes
For those of you who don't agree and believe you're being taxed to the hilt, there's good news: There are ways you can lower your taxes. Obviously, everyone's situation is going to be unique, but here are a few methods to consider as we near 2014 for you to lower your taxable income.

  • Open or add to a Traditional IRA or Roth IRA. Individual retirement accounts are not only crucial to building wealth over the long-term so that you can retire comfortably, but they come with their own unique tax benefits, as long as you don't make any withdrawals before age 59 1/2. Traditional IRAs will allow you to deduct your full contribution (up to a maximum of $5,500 in 2013) on your upcoming year's taxes, but note that you'll have to pay taxes on the gains in your IRA when you begin making withdrawals. A Roth IRA gives you no upfront tax benefits, but the money in the account, again assuming no withdrawals before you're allowed, will grow completely free of any further taxation.
  • Maximize your 401(k) contribution. Contributing to a 401(k) is especially important if you work for an employer that matches your contribution up to a certain limit. Some shining examples would be IBM and Weyerhaeuser, which match employee contributions dollar-for-dollar up to 6% and 3%, respectively.
  • Make a donation. Sometimes the best reductions to taxable income are the ones that make you feel the best, like making a donation to your favorite qualifying charitable organization. And of course, remember to document your donation!
  • Go green. Through 2016, homeowners can purchase alternative-energy solutions for their home for which they can then claim a 30% write-off. Examples of an alternative-energy upgrade would be the installation of solar panels or geothermal heat pumps. The best part of all: Labor is included in your total cost for the project(s), and there's no tax credit cap!
  • Sell off your portfolio losers. In a perfect world, we'd never lose money on any stock trades we make; but this isn't a perfect world and you probably have some red ink sitting in your stock portfolio. As Fool Dan Caplinger reminds us, instead of waiting until the last second, when other investors are thinking about doing the exact same thing and dumping their losers for the year, you should consider taking tax losses now (for companies that no longer meet your investment thesis), which can partially be used against your taxable and investment income.

Don't forget about this when planning for your retirement
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Read/Post Comments (26) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2013, at 4:34 PM, SaintJoseph wrote:

    The "rise" of the Canadian stock index (TSX)

    for the past 5 years pales against the

    rise of the DOW or SP-500.

    When I invest my assets,

    As a shameless Canadian capitalist

    majority of my stock holdings are in

    DOW, SP-500, and NASDAQ markets.

    Surely, I do have some Canadian holdings.

    I invest in companies with

    "Recurring Competitive Business Advantages".

    QED.

  • Report this Comment On November 10, 2013, at 9:47 PM, jasonhad wrote:

    Problem is - this is only the tip of the berg.

    In Europe, taxpayers also are subject to VAT ranging from 6% on home improvements to 25% on car purchases. Plus real estate taxes.

    In the USA, only federal income tax rates are shown - but states and cities tack on anywhere from 2% to 24% (New York CIty) in income tax, plus sales taxes of up to 10%, real estate taxes, utility taxes, and on, and on. Plus, there are "user fees" that are in reality disguised taxes.

    Government soaks up more and more of citizens' labour in taxes and fees, and wastes huge amounts on everything from presidential 747s to deliver the Master for political fundraisers, to gas-guzzling multi-million-dollar aircraft that have almost zero chance of ever being used to defend the nation. Not to mention gold-plate pensions and millions of useless bureaucrats.

  • Report this Comment On November 10, 2013, at 9:59 PM, vet212 wrote:

    Note to self all these countries are socialist and provide cradle to grave support for people who won't work

  • Report this Comment On November 11, 2013, at 12:04 AM, CpnJohn wrote:

    Just because US rates are below the ridiculously high rates of the listed countries does not mean that there is no reason to complain about US taxes. The US tax rates are increasingly becoming burdensome. The IRS needs to be taught that they are our servants, not we theirs.

  • Report this Comment On November 11, 2013, at 12:10 AM, mthorsen wrote:

    how on earth can you compare US federal taxes with European total income taxes. I agree taxes in US are lower but make comparision with someone living in NY or California and its pretty close.

  • Report this Comment On November 11, 2013, at 3:57 AM, SeniorMoment wrote:

    The UK's rate was highest rate was cut to 45% a couple of years ago. Which means it doesn't make the Top 10-very bad reporting.

  • Report this Comment On November 11, 2013, at 8:59 AM, treesmiths3 wrote:

    Isn't France now at 75%???

    Why isn't the new Obamacare income tax of 3.8% mentioned? And it needs to be added to the possible AMT? Is social security/medicare a tax? When you are self employed, its a doubled rate that adds 15% to your tax bill!

    Here in WA state, we pay a .53 cents a gallon gas tax. A 17% hotel/motel tax, a rental car tax and sales tax of almost 10%. Kayak Point park (my local county park) has a $5.00 entrance fee, just to sit on a bench.

    And when I get home, I pay $600.00 a month property tax on my house.

    Income tax? That is just the beginning and its demoralizing.

  • Report this Comment On November 11, 2013, at 9:25 AM, alan0101 wrote:

    Well, the good news is than in the US, money goes to pay for tax cuts to the rich, stupid no win wars, bankers, lobbyists and lawyers. So much better than cradle to grave socialism as one reader parroted.

  • Report this Comment On November 11, 2013, at 9:45 AM, MaxTheTerrible wrote:

    Well, if you compare taxes in the US vs EU you should take into account healthcare, which is "free" in the EU. Add healthcare costs to our lower taxes here in the US and the end result may not be that different...

    Cheers!

  • Report this Comment On November 11, 2013, at 12:19 PM, MartyTheCanuck wrote:

    Max

    Wait, healthcare will be free in the US very soon, thanks to Obamacare. NOT !

  • Report this Comment On November 11, 2013, at 12:55 PM, BillMack91302 wrote:

    The article fails to mention that there are no state income taxes in Europe and no Social Security or medicare taxes. The top rate for all taxes in California is over 55% and sales taxes range between 9.5 to 10%. This puts a California resident in the top 3.

  • Report this Comment On November 11, 2013, at 1:14 PM, GuitarJim wrote:

    @Bill Mack, you forgot that most Europeans pay a VAT rather than a sales tax that averages around 24%. All told, an average European gives slightly more of his earnings to the government than an average Californian, especially when you consider that half of Californians receive more from the government than they pay.

  • Report this Comment On November 11, 2013, at 1:19 PM, Jamro wrote:

    I guess the forgot to get all the facts and omitted France's 70% income tax.....

  • Report this Comment On November 11, 2013, at 1:33 PM, kalaloch wrote:

    Most of those countries offer a free college education to anyone who makes the grade, thus allowing the smartest people, regardless of their class background to succeed and ensuring less income inequality. Their single-payer health systems allow individuals to pursue their entrepreneurial dreams as they are not saddled to a particular company for their family's health care. Most of these countries also report a higher overall level of happiness and satisfaction than those in the United States.

  • Report this Comment On November 11, 2013, at 3:18 PM, BreakerBeth wrote:

    "Traditional IRAs will allow you to deduct your full contribution (up to a maximum of $5,500 in 2013) on your upcoming year's taxes, ..."

    Sorry. This is NOT true. Check the details! There are limits on your modified, adjusted gross income.

  • Report this Comment On November 11, 2013, at 3:32 PM, NeedaClue7 wrote:

    Um...Your study apparently neglected to include State & local income taxes in the US rate, which would likely push us much higher on the list. Very few other countries (and none of those on the list you quoted) impose an income tax below the national level. So we really DO have a cause to complain.

  • Report this Comment On November 11, 2013, at 3:36 PM, Mathman6577 wrote:

    Any tax is a problem, whether it is an federal, state, or local tax, income tax, payroll tax, sales tax, VAT.

  • Report this Comment On November 11, 2013, at 4:33 PM, altha2008 wrote:

    I have a small business, only in American can I buy equipment, a car, and travel, and still use it as an expense for my business

  • Report this Comment On November 11, 2013, at 4:56 PM, mdk0611 wrote:

    NYC Resident (>1 mil single, 2 mil. married joint file) 2013

    Fed 39.6

    Obamacare 3.8

    NYS 8.82

    NYC 3. 876

    --------

    56.096%

    Less: NYS/C deductibility (5.027)

    -----------

    Net 51.069%

    NYC resident below top NYS rate

    Federal 39.6

    Obamacare 3.8

    NYS 6.85

    NYC 3.876

    ---------

    Total 54.126%

    Less: NYS?C deductibility (4.247)

    ----------

    Net 49.879%

  • Report this Comment On November 11, 2013, at 5:57 PM, irvingfisher wrote:

    this is dumb. you can't compare tax rates without comparing tax benefits. In europe, do people even have to save for retirement? How much does university tuition cost, or childcare, or healthcare?

    moreover, marginal rates are pretty irrelevant when you consider the possibility of deductions. My marginal rate is 43%, but my actual tax rate is about 33%.

    Also, as many people mentioned, Europe has a massive VAT.

    Stupid article.

  • Report this Comment On November 11, 2013, at 9:14 PM, mortmain wrote:

    Honestly, they haven't cut spending.....

  • Report this Comment On November 11, 2013, at 9:16 PM, irvingfisher wrote:

    Global competitiveness report rankings for 2013-2014:

    5 of the 15 most competitive economies are in your top 10 tax list.

    5 of the 15 countries with the best quality of life (as measured by the undp) are your top 10 tax list.

    1 Switzerland 5.67 (—)

    2 Singapore 5.61 (—)

    3 Finland 5.54 (—)

    4 Germany 5.51 (+2)

    5 United States 5.48 (+2)

    6 Sweden 5.48 (-2)

    7 Hong Kong 5.47 (+2)

    8 Netherlands 5.42 (-3)

    9Japan 5.40 (+1)

    10 United Kingdom 5.37 (-2)

    11 Norway 5.33 (+4)

    12 Taiwan 5.29 (+1)

    13 Qatar 5.24 (-2)

    14 Canada 5.20 (—)

    15 Denmark 5.18 (-3)

    top 15 countries for quality of life. (UNDP index)

    1 Norway

    2 Australia

    3 United States

    4 Netherlands

    5 Germany

    6 New Zealand

    7 Ireland

    7 Sweden

    9 Switzerland

    10 Japan

    11 Canada

    12 South Korea

    13 Hong Kong

    13 Iceland

    15 Denmark

  • Report this Comment On November 11, 2013, at 9:34 PM, Mathman6577 wrote:

    I don't understand what this has to do with investing in stocks. I'm getting tired of all the political posturing. I get enough of that on TV and in the papers.

  • Report this Comment On November 12, 2013, at 6:32 AM, TopAustrianFool wrote:

    "Why Europe, you might wonder? A lot of Europe's higher tax rates have to do with its austerity measures instituted over the past couple of years. Taxes are a constraint on European citizens -- ergo the tepid growth rates we've witnessed in the region -- but higher taxes are needed to balance certain European countries' budgets that were heavily in the red before the recession. In all likelihood, Europe's high taxes are here to stay for a long time."

    Really?! I thought that taxes in Europe were due to the Welfare State costing excessive amounts of productive capital.

    And what austerity? They have never gone through any austerity.

  • Report this Comment On November 12, 2013, at 6:54 AM, NOTvuffett wrote:

    @TopAustrianFool,

    Don't you find it curious that many writers here try to make a correlation to between higher taxes and a higher standard of living? lol. Wouldn't you be richer if Big Bro would just take some more tax from you? lol.

  • Report this Comment On November 12, 2013, at 10:14 AM, fwe43 wrote:

    @Vet212 - None of these countries are actually socialist and they are able to provide cradle to grave support for people because they all do work. And the fact is they all enjoy a higher standard of living and are in deed happier than most people in the world based on decades of polling. They don't whine like babies about taxes they instead enjoy life.

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