Western European economies* hit their highest earners with bigger tax bills than anywhere else in the world, as top earners in Ireland also pay more than their global peers.
Our recent research shows that global average take home pay on earnings of US$1.5 million is US$897,970, with tax at 40%.
In Ireland, the average take home pay on earnings at this level is US$734,798.09, with tax at 51.01%%.
Western European nations levy 25% more in tax than the global average. That means that taxpayers in Western European economies with earnings of US$1.5million are allowed to take home only an average of US$745,563, paying 50% of their income in tax. That is higher even compared to most other developed nations; for example top earners in Canada, the USA, Japan, New Zealand and Australia keep on average 57% of their pay.
At a slightly more modest income of US$250,000 the gap is even wider, with taxpayers in Western Europe allowed to take home only 56% of earnings, compared to 65% in other major developed economies.
Eastern European and emerging economies offer low tax rates to make themselves more attractive to top earners. In Dubai and Russia flat rate, or no, taxation means that all taxpayers take home 100% and 87% of their pay respectively, while taxpayers earning US$1.5 million in Slovakia, the Czech Republic, Jamaica all keep more than 70% of pay.
The message that high taxes on top earners are uncompetitive has had some impact in Western Europe, as several governments (particularly the UK and Italy) have taken steps to curb taxes that they fear will prompt a brain-drain of talent and major investors – particularly in the UK and Italy.
However, the gap between how heavily you are taxed in Western Europe compared to other developed economies remains striking, especially at the US$250,000 level. That’s a typical income for a successful engineer, marketer or head of IT.
As the global economy starts to improves and new job opportunities open up, governments around the world need to keep a close eye on income taxes to make sure that they do not cede any advantages to their rivals.
* France, UK, Italy, Austria, Belgium, Spain, Ireland, the Netherlands and Denmark.