Spain’s Income Tax Fifth Highest in the World

31 Oct

Spain is the country which has the fifth highest marginal rate of income tax in the world, after climbing to 52% in 2012, seven points higher than a year earlier, according to KPMG consultants’ annual study on personal income tax rates and contributions to Social Security.

Only four countries, three of them European, have an income tax higher than Spain. At the top of the list is the Caribbean island of Aruba, with a marginal income tax rate of 58.95%, followed by Sweden (56.6%), Denmark (55.4%) and the Netherlands (55%).
From January 2012, the supplemental levy approved by the Government envisaged a personal income tax increase of between 0.7% and 7% depending on the taxpayer’s income. This caused the tax rate for taxpayers with incomes above 300,000 euros to be increased from 45% to 52%.

In addition, El Mundo reported that the KPMG study indicates that when taking into account the regulatory capacity of the regions with regard to income tax, and the changes that some of them have introduced, Catalonia, with a marginal rate of 56%, has the second highest rate in Europe, surpassed only by Sweden (56.6%) and, globally, by that of Aruba (58.95%).
After Spain (52%), at a rate of 50%, there are three European countries: Austria, Belgium and the United Kingdom. Outside Europe, in Asia and Africa, Japan and Senegal are the only two countries with a tax scale that reaches 50%.

The Director of KPMG Lawyers’ Department of People Services, Maria Antonia del Rio, indicated that although these tax rates may seem high, it is also important to consider at what income thresholds such rates are applied. In this sense, Spain, with a tax base from 300,000 euros, is the country that requires a greater income for the implementation of the 52% marginal rate.

In Europe, in addition to the increase experienced in Spain, France also raised their marginal rate of tax this year from 41% to 45%, while outside of Europe the study highlighted the increase of ten points in the case of Zimbabwe (from 36% to 46%) and five points in the case of Egypt (from 20% to 25%). Thus Spain becomes the second country in the world, after Zimbabwe, which has increased tax most in the last year.

According to the KPMG study, there have been very few changes in the other European countries. Western Europe, with an average rate of 46%, continues to have the highest average marginal rates of income tax of any sub-region globally. In contrast, the average marginal rate for Eastern Europe stood at 16.7%, less than half, mainly due to the prevalence of low fixed tax initiatives. In Northern Europe, the average marginal rate of income tax is 36.5%.

Social Security Contributions
KPMG’s Lawyers noted that many economies have found it necessary to increase their marginal rate of income tax in order to address immediate concerns about the budget deficit and public debt. The study also includes an analysis of the social security contributions and personal income tax rates applicable to employees with gross incomes of US$100,000 and US$300,000.

In the calculation of both concepts combined, countries with the highest tax rates for employees earning US$100,000 are Belgium (47%), Greece (46.5%), Croatia (46.3%) and Italy (45.2%). Spain, with 32.3%, ranked in 26th position globally, six places higher than last year.

For incomes of US$300,000, the countries with the highest combined tax rates are Austria (55.3%), France (54%), Belgium (53.4%) and Italy (51.8%). Spain, with 44.1%, rises to 18th place from the 26th place it occupied in 2011.

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