The United Arab Emirates (UAE) has one of the world’s most attractive personal tax environments according to a new global survey of expatriate hot spots by Mercer.
Mercer’s Worldwide Individual Tax Comparator Report analysed the tax and benefits systems across 32 countries focusing on personal tax structures, average salaries and marital status. This data is used by multinational companies to structure pay packages for their expatriate and local market employees.
For single managers, the UAE is the most attractive tax environment according to percentage of net income available. The UAE ranks highly as it does not assess any income tax and the country’s social security contributions amount to only 5 percent of an employee’s gross salary. Russia, ranked 2, applies a flat tax of 13 percent across all income levels, while Hong Kong reaches rank 3, with taxes and social security contributions at 14.2 percent of gross base salary.
Excluding Russia, in general, European countries have less attractive tax environments and dominate the bottom of the rankings. The UK ranks 14=, followed by Ireland (18), Spain (19), and Switzerland (21). France and Germany are ranked 22 and 29
At the bottom of the rankings, single managers in Hungary (30), Denmark (31) and Belgium (32) pay, respectively, 48.5 percent, 48.6 percent and 50.5 percent of their gross income in taxes and social security contributions.
Asian markets dominate the top of the rankings with Hong Kong, Taiwan, Singapore, South Korea and China (Beijing) ranked 3, 4, 5, 6 and 7. The lowest ranked Asian country is India at 14=. In the Americas, Mexico (8), Brazil (9) and Argentina (10) outrank the United States (14=) and Canada (20).
Brian Waite, a senior consultant specialising in international issues, commented: "Local taxation is one of several factors that multinationals take account of when deploying staff across the globe. It has an obvious impact on take-home pay, and in some countries with low or zero tax rates it is an important incentive for employees to work abroad. In other high-tax destinations, multinationals need to create compensation packages that at least match their expatriates' purchasing power in the home country.
"Other important considerations for expatriate allowances are housing, private schooling and local cost of living adjustments, and there are additional complications around contributions to the home country pension plan. These factors can all contribute to the high cost of a global expatriate workforce."
Markus Wiesner, Mercer's head of operations in Dubai, added: "We often find that the UAE's zero taxation is a strong draw for expatriates on short-term assignments. For three to five years, young professionals can fast-track their savings to afford a mortgage when they return home, while senior executives can maximise their savings potential ahead of retirement. It's in these particular groups that we get a really good mix of expatriate talent in Dubai.”
"While the local perception is that Dubai is a relatively expensive global destination, this is not borne out by Mercer's cost of living survey*.It ranks alongside many European countries that, in contrast, demand high tax contributions. Clearly, accommodation costs are a reality but other expenses are exceeded in most other leading commercial centres in the West."
According to Niklaus Kobel, researcher at Mercer’s Geneva office, “Marital status is still a major factor in determining local tax rates. The data highlights the fluctuation in tax rates applied according to an employee’s income level and marital status. It is important to note that high tax rates do not necessarily mean less affluence.”
Not all taxation systems vary according to marital status, however. Married employees in Brazil, India and Turkey have similar tax rates to single employees.
Mercer’s 2007 Worldwide Individual Tax Comparator report is designed specifically to help companies understand, analyse and compare personal tax rates and taxation components across 32 countries to help HR departments compile well-structured, competitive salary packages for their employees. See attached table for full rankings, additional information and gross and net salary data.
Tax laws can change without notice. The Worldwide Individual Tax Comparator should be used as a general guide to taxation and not as a legal, accounting or other professional service.
Hong Kong, with a substantially different tax and financial system from the rest of China, is for the purposes of Mercer’s reports, listed as a separate country.
The tax rates quoted in this release are based on the average for a middle manager, earning $91,000 a year.
* Mercer’s latest Cost of Living Survey, published in June, covers 143 cities* across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is the world’s most comprehensive cost of living survey and is used to help multinational companies and governments determine compensation allowances for their expatriate employees. A summary of its conclusions can be accessed at mercer.com. Dubai ranks at number 34.
© 2007 Al Bawaba (www.albawaba.com)
