Wealth Taxes IV: International Experience (Description)

The first brief of the series provided a conceptual framework, the second dealt with the rationales for a wealth tax, the third discusses the problems, the sixth deals with a land tax, and the4 seventh discusses lessons for South Africa.

Introduction

This brief consists of three sections. The first lists countries that currently impose wealth taxes (WT) with a brief description of each system. The second is a list OECD countries that have imposed wealth taxes in the last 20 years. The last section lists the nine countries which have abandoned WT. Where available, the reasons are given.

Countries currently imposing wealth taxes

There 15 countries that currently impose WT. These are listed below alphabetically with a brief description of each. [1]

Algeria

WT will be introduced in 2018 for residents assessed on a worldwide basis and applies to property with a net worth higher than DZD 50 million (US$ 435 000). Information on WT rates is not yet available. Tax credits will apply when an individual has paid a similar tax on non-Algerian assets. Nonresidents will pay WT on property located in Algeria.

Argentina

WT of 0.5% for 2017 (down from 0.75% for 2016 and to be further reduced to 0.25% for 2018) is levied against personal property over ARS 950 000 (US$ 47 500) (increased from ARS 800 000 for 2016 and to be further increased to ARS 1 050 000 for 2018). Nonresidents are charged the same as locals. Corporate WT also applies, at 0.25% on the net equity where the shareholder is a nonresident or a resident individual. Companies have a right to request reimbursement from the shareholder.

Bangladesh

A progressive income tax surcharge is levied according to net wealth, with a minimum levy of BDT 3k.

BDT 22.5 million is equivalent to US$ 270 000.

Colombia

WT is payable for 2015-2018 at progressive rates between 0.125% and 1.5%, though expected to be eliminated by 2019.

Corporate WT applies for 2015 to 2017 on entities with equity exceeding COP 1 million

(US$ 35 000). The corporate WT will be reduced over the period, with a max of 1% (from 1.15% for 2015) and 0.4% for 2017.

Dominican Republic

WT of 1% for all individuals conducting business in the Republic.

France

In October 2017, the French Parliament under Emmanuel Macron adopted a package of measures for 2018 that included scrapping the wealth tax on everything except real estate. The ISF in its 2017 form is presented below.

WT, or Impôt sur la solidarité fortune (ISF), are levied progressively against households (rather than individuals) at the following rates:

800 000 Euro is equivalent to US$ 985 000.

For residents the tax is imposed on worldwide assets, subject to treaty provisions. Some assets are exempt and small deductions for dependents are allowed. Couples are obliged to make a joint declaration whether they are married or not. Assets held by children below the age of 18 must also be included in the calculation. Nonresidents must pay WT on their assets located in France, unless exempt under a tax treaty. French financial investments owned by nonresidents are exempt.

France’s WT allowances include the following:

• A discount is permitted for properties with sitting tenants, dependent on the nature and duration of the letting.
• Business assets are in general excluded.
• Antiques over 100 years old, works of art, classic cars, the value of artistic, industrial and literary rights are also exempt.
• Investors in small or medium sized European companies can have 50% of the investment deducted for wealth tax purposes.
• Reductions are allowed for 50% of donations to nonprofit organization up to a limit of EUR 45k.
• A wealth tax ceiling limits total French and foreign taxes to 75% of income.

Hungary

Hungary introduced, in January 2010, a wealth tax on luxury watercraft, aircraft and high performance passenger cars.

Italy

Financial assets held abroad by a resident are taxed at 0.2%. Immovable property outside Italy owned by residents is taxed at 0.76% of the original cost or market value.

Moldova

WT of 0.8% is levied against individuals who own real estate in Moldova (excluding land), the estimated value of which is MDL 1.5m (US$ 90 000) or above and an area of 120 m² or more.

Netherlands

The Dutch WT is known as Box 3 and is levied against savings, property and investments. The exemption level is €25k (US$ 31 000) , with tiers in place for assets under €75,000, €75k-975k and over €975k. Effective rates rise progressively for each successive band: 0.86%, 1.4% and 1.6% respectively. There are no capital gains taxes.

Norway

WT of 0.85% levied against net wealth exceeding NOK 1.48m. Real estate assets are estimated to approximately 50% of the market value and 25% if it is the taxpayer's primary residence for tax purposes, as is the net wealth of married couples living together is aggregated.

Saudi Arabia

The Saudi WT known as Zakat is levied on the net worth of all business registered in Saudi Arabia at a rate of 2.5%.

Spain

WT is levied against property owned by taxpayers at a rate established by each autonomous region, which ranges from 0.2% to 2.5%. WT is not levied in Madrid.

Switzerland

WT is levied against wealth exceeding specific thresholds that vary by canton. WT rates too vary by canton.

Uruguay

WT is levied against all types of legal entities and business enterprise owners at a rate of 1.5%. Only assets located or economically used in Uruguay are taxable.

OECD and other countries that have imposed wealth taxes in the last 20 years

Colombia, Hungary, Iceland, Italy, Slovenia and Spain.

Countries which used to have wealth taxes but abandoned them

Below is a list of the ten countries which have abandoned WT. Where available the reasons are given.

Austria

Abandoned in 1994 due to high administrative costs, low revenue, problems with asset valuation and the liberalization of capital flows. [2] & [3]

Denmark

Abandoned in 1995 due to high administrative costs, low revenue, problems with asset valuation and the liberalization of capital flows. [2] & [3]

Finland

Abandoned in 2006 due to high administrative costs, low revenue and problems with asset valuation. [1]

Germany

Abandoned in 1997 due to high administrative costs, low revenue, problems with asset valuation and the liberalization of capital flows. [2] & [3] Germany’s Federal Constitutional Court went as far as to declare the net wealth tax as unconstitutional. Its reasoning was premised on the concern that different valuations for different kinds of property were in violation of equality of law principles. Such differences and inconsistencies were manipulated by taxpayers who sought to minimise the tax burden within the letter of the law. [4]

Iceland

Abandoned in 2005 due to high administrative costs, low revenue, savings disincentive [5] and inefficient resource allocation. [6]

WT was seen as a savings disincentive because for instance, if a taxpayer’s net wealth increased by 5 percent, a wealth tax of 1.45 percent is akin to a 29 percent tax on the 5 percent annual return. Regards inefficient resource allocation, Iceland’s taxpayers were more likely to leverage their assets to avoid the net wealth tax and this was partly responsible for Iceland’s well known debt woes.

Iceland reintroduced the WT in 2010 and it expired in 2015. It was reintroduced to try and stem the harmful effects of the financial crisis. There is no clear indication whether this worked as intended.

India

Abandoned in 2015 due to high administrative costs, low revenue and a disproportionate compliance burden on taxpayers. [7]

Ireland

Abandoned in 1977 due to high administrative costs, low revenue, failure to improve horizontal equity of the tax system as well as failure to reduce inequality. [8]

Slovenia

Abandoned in 2006.

Spain

Abandoned in 2007 due to high administrative costs, low revenue and problems with asset valuation. [2] It was reintroduced in 2012 to try and stem the harmful effects of the financial crisis. There is no clear indication whether this worked as intended.

Sweden

Abandoned in 2007 due to high administrative costs, low revenue, problems with asset valuation, [2] capital flight and inconsistencies in the treatment of private wealth and operating assets which lead to inefficient and inequitable outcomes. [4]

Charles Collocott
Researcher
charles.c@hsf.org.za

­­­­­­­­­­­­­Notes

[1] https://dits.deloitte.com/#TaxGuides

[2] OECD, 2014

[3] Taxation of Financial Intermediation: Volume 235 edited by Patrick Honohan, 2003

[4] Chatalova and Evans, 2013, pg 445

[5] Gissurarson and Mitchell, 2007

[6] Chatalova and Evans, 2013, pg 448

[7] Batra, 2015

[8] Sandford and Morrissey, 1985, pg 148 - 152