Lee Byers: Where Can Expats Escape Abroad and Pay Less Tax?
You may think that Britons resident and working in the UK have a particularly high tax burden, but according to the latest findings from the OECD's annual Taxing Wages report, Britain comes in close to the OECD average in terms of the amount it takes in the form of income taxes, social security payouts and employers' taxes…which suggests that there are plenty of nations out there which will actually tax you more!
So, expats need to tread carefully if they want to escape abroad and actually pay less tax – which is why today we're going to take a close look at the OECD findings and break them down into bite sized pieces to determine where in the world an internationally mobile worker may be better off.
The latest Taxing Wages report from the Organisation for Economic Cooperation and Development reveals that the average tax and social security burdens on employment incomes rose in most countries in 2010. In the UK Britons are only too aware of the double squeeze impacting their take home pay - i.e., higher taxes and high inflation – but elsewhere in the world things aren't always quite as bad, proving that if you do your country based research carefully, you could find a lower cost of living, lower taxes and therefore better take home pay at the end of the month.
The Taxing Wages report provides detailed analysis of the taxation of employment income across OECD countries and the distribution of this tax burden across different types of household and those with different levels of earnings. In other words, it examines averages for those on minimum wages, those on X% higher than minimum wages, families with children and lone workers for example.
It then collates and compares all this data and come up with the likes of the following findings: -
If you're a family of four with only one adult earning an income, you will be hardest hit in terms of taxation in France, Belgium or Italy. But for a similar family living in New Zealand, Chile, Switzerland and Luxembourg you will find your government will tax you the least. However, as anyone living in Switzerland will tell you, the cost of living is exorbitant there so even if you take home more of your wage, you will soon lose it in living costs!
Additionally, average wages in the likes of Chile and New Zealand are lower than in the UK in most sectors – so it becomes apparent that to just compare taxation when it comes to your research into which nation you'd be better of living in is insufficient.
Other findings include the fact that if you're a lone worker with no dependents you will pay the most tax on your income in the likes of Germany, Belgium and France and the least in Chile, Mexico and New Zealand.
Certain nations have made a concerted effort to reduce taxation in a bid to boost and encourage consumer spending – Germany is one even though it is still considered a relatively high tax nation – elsewhere taxation has been pushed up, but the amount recouped by the local exchequer has fallen as unemployment has increased and the average wage has fallen. This is true in the likes of Ireland and Greece for example.
Therefore, if you want to know where you will pay less tax you can look at the headline rates in the OECD's report, but to determine where you will be better off living abroad you need to look much more closely at other elements of the economy.
Taxation is important – but so is the cost of living, the average wage, unemployment rates, inflation, the buoyancy or otherwise of your particular employment sector and the fact that in many nations there are stealth taxes placed on wages.
The UK is infamous for heavily taxing the likes of fuel and pushing up the VAT rates for example, but according to the OECD's Taxing Wages report, which can be found here: "Australia, Chile, Iceland, Israel, Italy, Mexico, the Netherlands, Norway, Poland, the Slovak Republic and Switzerland put large additional burdens on employment costs through compulsory payments which are not regarded as tax, since they are not paid to government, but to privately-managed pension funds or insurance companies. Often, these are paid by the employer, but in Chile, Iceland, Israel, the Netherlands, Poland and Switzerland a large proportion is paid by employees."
Therefore, if you're planning a move abroad and it is critically important to you that you improve your financial standing as a result, ensure you look beyond the bottom line income tax rates, and take into account all the other factors as detailed above.
So, expats need to tread carefully if they want to escape abroad and actually pay less tax – which is why today we're going to take a close look at the OECD findings and break them down into bite sized pieces to determine where in the world an internationally mobile worker may be better off.
The latest Taxing Wages report from the Organisation for Economic Cooperation and Development reveals that the average tax and social security burdens on employment incomes rose in most countries in 2010. In the UK Britons are only too aware of the double squeeze impacting their take home pay - i.e., higher taxes and high inflation – but elsewhere in the world things aren't always quite as bad, proving that if you do your country based research carefully, you could find a lower cost of living, lower taxes and therefore better take home pay at the end of the month.
The Taxing Wages report provides detailed analysis of the taxation of employment income across OECD countries and the distribution of this tax burden across different types of household and those with different levels of earnings. In other words, it examines averages for those on minimum wages, those on X% higher than minimum wages, families with children and lone workers for example.
It then collates and compares all this data and come up with the likes of the following findings: -
If you're a family of four with only one adult earning an income, you will be hardest hit in terms of taxation in France, Belgium or Italy. But for a similar family living in New Zealand, Chile, Switzerland and Luxembourg you will find your government will tax you the least. However, as anyone living in Switzerland will tell you, the cost of living is exorbitant there so even if you take home more of your wage, you will soon lose it in living costs!
Additionally, average wages in the likes of Chile and New Zealand are lower than in the UK in most sectors – so it becomes apparent that to just compare taxation when it comes to your research into which nation you'd be better of living in is insufficient.
Other findings include the fact that if you're a lone worker with no dependents you will pay the most tax on your income in the likes of Germany, Belgium and France and the least in Chile, Mexico and New Zealand.
Certain nations have made a concerted effort to reduce taxation in a bid to boost and encourage consumer spending – Germany is one even though it is still considered a relatively high tax nation – elsewhere taxation has been pushed up, but the amount recouped by the local exchequer has fallen as unemployment has increased and the average wage has fallen. This is true in the likes of Ireland and Greece for example.
Therefore, if you want to know where you will pay less tax you can look at the headline rates in the OECD's report, but to determine where you will be better off living abroad you need to look much more closely at other elements of the economy.
Taxation is important – but so is the cost of living, the average wage, unemployment rates, inflation, the buoyancy or otherwise of your particular employment sector and the fact that in many nations there are stealth taxes placed on wages.
The UK is infamous for heavily taxing the likes of fuel and pushing up the VAT rates for example, but according to the OECD's Taxing Wages report, which can be found here: "Australia, Chile, Iceland, Israel, Italy, Mexico, the Netherlands, Norway, Poland, the Slovak Republic and Switzerland put large additional burdens on employment costs through compulsory payments which are not regarded as tax, since they are not paid to government, but to privately-managed pension funds or insurance companies. Often, these are paid by the employer, but in Chile, Iceland, Israel, the Netherlands, Poland and Switzerland a large proportion is paid by employees."
Therefore, if you're planning a move abroad and it is critically important to you that you improve your financial standing as a result, ensure you look beyond the bottom line income tax rates, and take into account all the other factors as detailed above.
