The International Tax Competitiveness Index 2025, compiled by the Tax Foundation, finds that Estonia has the best tax system in the OECD for the twelfth consecutive year. The United Kingdom languishes at 32 out of 38 nations, with only France and Italy of the G7 states ranking lower.
The International Tax Competitiveness Index (ITCI) is an annual ranking of 38 OECD countries trying to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality. It examines over 40 different tax policy variables in assessing how economic growth is supported.
The bad news for the UK is that its VAT regime was ranked 33rd, with the property tax system identified as the second worst in the OECD.
Although the UK ranked in the same position as last year, the report noted that it, Australia and the US (ranked 16th) would drop further in rankings should anti-abuse provisions be included in its methodology. The report highlighted that Australia and the UK both apply a Diverted Profits Tax, which produced a set of complex rules and penalty rates that apply if a company is found to have minimised its tax burden through a structure without economic substance.
"These complex tax regimes result in high compliance costs for multinational companies as well as double taxation of some corporate profits," the report said.
The report summarised the UK's tax system as:
Some strengths
- The UK provides Full expensing for business investments in machinery and above-average cost recovery for investments in intangible assets.
- The UK has a territorial tax system exempting both foreign dividends and capital gains income without any country limitations.
- The UK operates the broadest tax treaty network in the OECD, with 132 countries.
Some weaknesses
- The top personal Income Tax rate on dividends is 39.35%, while the top rate on capital gains is 24%, well above the OECD averages of 24.7% and 20%, respectively.
- The real property tax burden is the highest in the OECD.
- VAT at a rate of 20% applies to less than half of the potential consumption tax base, and the VAT threshold is 2.8 times as high as the OECD average.
International Tax Competitiveness Index
|
Country |
2024 Rank |
2024 Score |
2025 Rank |
2025 Score |
Change in Rank from 2024 to 2025 |
Change in Score from 2024 to 2025 |
|---|---|---|---|---|---|---|
| Estonia | 1 | 100 | 1 | 100 | 0 | 0 |
| Latvia | 2 | 92.2 | 2 | 92.8 | 0 | 0.6 |
| New Zealand | 3 | 86 | 3 | 87.8 | 0 | 1.8 |
| Switzerland | 4 | 83.7 | 4 | 86 | 0 | 2.4 |
| Lithuania | 5 | 79.8 | 5 | 81.8 | 0 | 2.1 |
| Israel | 6 | 78.7 | 8 | 78.9 | -2 | 0.1 |
| Hungary | 7 | 78.6 | 9 | 78.7 | -2 | 0.2 |
| Luxembourg | 8 | 77.9 | 6 | 81 | 2 | 3.1 |
| Czech Republic | 9 | 76.6 | 10 | 77.4 | -1 | 0.7 |
| Slovak Republic | 10 | 75.9 | 14 | 73.3 | -4 | -2.6 |
| Australia | 11 | 75.4 | 7 | 79.7 | 4 | 4.3 |
| Turkey | 12 | 73.9 | 12 | 75.9 | 0 | 1.9 |
| Sweden | 13 | 73.2 | 11 | 76.1 | 2 | 2.9 |
| Canada | 14 | 69.8 | 13 | 73.9 | 1 | 4.1 |
| Austria | 15 | 67.9 | 19 | 69.6 | -4 | 1.8 |
| United States | 16 | 67.4 | 15 | 72.5 | 1 | 5.1 |
| Netherlands | 17 | 67.2 | 16 | 71.4 | 1 | 4.3 |
| Finland | 18 | 66.4 | 24 | 66.8 | -6 | 0.4 |
| Mexico | 19 | 65.8 | 18 | 70.1 | 1 | 4.3 |
| Costa Rica | 20 | 65.5 | 17 | 71.4 | 3 | 5.9 |
| Germany | 21 | 65.3 | 20 | 68.9 | 1 | 3.6 |
| Slovenia | 22 | 65.1 | 25 | 66.8 | -3 | 1.7 |
| Japan | 23 | 64.7 | 22 | 67.8 | 1 | 3.1 |
| Norway | 24 | 64.1 | 21 | 68.8 | 3 | 4.7 |
| Korea | 25 | 63.6 | 26 | 66.3 | -1 | 2.8 |
| Greece | 26 | 62.9 | 23 | 67 | 3 | 4.1 |
| Denmark | 27 | 61.8 | 27 | 64.3 | 0 | 2.5 |
| Belgium | 28 | 60.6 | 30 | 63.2 | -2 | 2.7 |
| Poland | 29 | 59.1 | 35 | 54.7 | -6 | -4.4 |
| Chile | 30 | 58.9 | 28 | 63.8 | 2 | 4.9 |
| Iceland | 31 | 58.1 | 29 | 63.7 | 2 | 5.6 |
| United Kingdom | 32 | 57.3 | 32 | 59.1 | 0 | 1.8 |
| Ireland | 33 | 57 | 31 | 61.3 | 2 | 4.3 |
| Spain | 34 | 55.5 | 34 | 57.9 | 0 | 2.4 |
| Portugal | 35 | 52.3 | 33 | 58.2 | 2 | 6 |
| France | 36 | 48.2 | 38 | 45.8 | -2 | -2.4 |
| Colombia | 37 | 47.3 | 36 | 51.1 | 1 | 3.9 |
| Italy | 38 | 46.1 | 37 | 50.3 | 1 | 4.2 |
Other points of interest
Estonia tops the league table, driven by four positive features of its tax system.
- First, it has a 22% tax rate on corporate income that is only applied to distributed profits.
- Second, it has a flat 22% tax on individual income that does not apply to personal dividend income.
- Third, its property tax applies only to the value of land, rather than to the value of real property or capital.
- Fourh, it has a territorial tax system that exempts 100% of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.
France has the least competitive tax system in the OECD.
- It has the highest top corporate tax rate in the OECD, at 36.13%, including multiple surtaxes and distortive production taxes.
- It also applies multiple distortionary property taxes with separate levies on estates, bank assets, and financial transactions, in addition to a wealth tax on real estate.
- Its VAT covers about 50% of final consumption, and it has one of the highest VAT registration thresholds.
Italy has the second-least competitive tax system in the OECD.
- It has multiple distortionary property taxes with separate levies on real estate transfers, estates, and financial transactions, as well as a wealth tax on selected assets.
- Italy’s relatively high VAT rate of 22% applies to the sixth-narrowest consumption tax base in the OECD.
Useful guides on this topic
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Income, claims & reliefs
This section contains guides to income tax, losses, reliefs, savings and investment income, SEIS & EIS, and much more to assist in tax planning and completing returns under self-assessment.
Dividend tax
This practical tax guide explains how dividends are taxed on or after 6 April 2016. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.
External links