Countries with the Highest Income Taxes in the World

Last updated on 02 August 2023. Written by Offshore Protection.

Just as every part of the world varies in terms of culture, climate, standards of living, and political systems so too do their tax systems.

Each country has its own unique tax system with opportunities hidden if you know where to look. In high tax countries, governments seek to redistribute some of the wealth by placing progressive tax rates on the wealth as high as 60% in some places in Europe, in an effort to increase equality. The result that follows is often a flight of capital to low-tax countries where the wealthy move their assets overseas to escape the outrageously high tax burden.

Tax rates greatly affect the investment decisions of the wealthy, while states should try and encourage local investment, instead, they have often pursued more aggressive policies alienating the taxpayers they should instead be courting. High-income earners in response simply move their assets, business and life overseas to take advantage of local tax opportunities abroad.

In this article, we will speak about the different tax systems and list several countries that have the highest tax rates in the world.

Table of Contents:

Different Types of Income Tax Systems
Marginal Tax Rates vs Average Tax Rate
Countries with the Highest Tax Rates in the World
Highest Income Tax Rate Countries
Moving to Countries with Lower Taxation

Different Types of Income Tax Systems

Not all tax systems are created equal. Aside from the obvious variations in tax rates, there are also different tax systems that can roughly be broken down into four different categories:

1. Residential tax system

This is the most common type of tax system in the world, and is especially prevalent throughout the Eurozone.

In most cases, you are deemed a resident for tax purposes if you spend more than 183 days a year in a country with a residential tax system. This means you are liable to pay taxes on all your worldwide income in accordance with the tax rates in your country of residence.

2. Territorial tax system

This is a friendlier tax system whereby only income which is earned within the geographic boundaries of the country is subject to tax in the said country. In other words, any overseas income is exempt from tax, allowing one to optimise their taxes by living in one of these countries and obtaining their income from an overseas jurisdiction.

Examples of countries with territorial tax systems include Singapore, Hong Kong, Panama, and Malaysia.

3. Zero tax system

As the name implies, these are countries which levy zero personal income taxes whatsoever. The most common examples are traditional tax havens which aim to attract wealthy foreign investment by offering attractive tax regulations, as well as nations which obtain significant national revenue from alternative sources (e.g., the Gulf Nations).

While it might sound highly attractive to relocate to a tax-free country, and it may well be a good option, it is important to understand that very often a country with a territorial tax system will serve just as well, and often make it easier to acquire residency there.