So much information may be found online about the Nordics. From its unique attractions, history, culture and opportunities, the countries come about as being a perfect destination that so many would kill for. But one thing that when mentioned will bring up wrinkles in the face of someone who has lived and worked in the Nordics is taxation. Yes, the social welfare protection schemes in force across the Nordic countries are second to none but then we all want to be so possessive of our hard earned money. Who would fancy a tax system that hives off a whooping 38% in tax and then another roughly 10% in other deductions? The taxes will work for you but then the pain of seeing your gross income vis-à-vis take home salary may leave so much to talk about.
Let’s be honest for a minute: some people do not like paying taxes. Many times, people complain about high tax rates imposed by the government. Avoiding paying taxes is not a solution. The fact is taxation touches each of our lives in one way or the other. How will any government survive without taxes? Therefore, taxation in Nordic countries is so important.
Tax rates in the Nordics borders on a 50/50 sharing of income between governments and salaried workers
Nordic countries are at the top of the world with the highest tax rates. Interestingly, the public supports such high taxes. They say without high taxes essential services would be no more. The Nordic tax systems are extremely complex. Understanding tax policies in Nordic countries is not easy. Before moving to the Nordic countries, you need to understand their tax system.
Furthermore, economic growth is critical in any nation. Nordic country governments go out of their way to provide essentials for the citizens. This is only achievable through taxation which is a major contributor to the provision of economic services. Without taxation, Nordic countries cannot realize their economic objectives.
One of the ways of funding the cost of government in Nordic countries is through taxation. It is among the instruments that boost public sector performance. Taxation aids in the repayment of public debt. Taxation is extremely crucial in Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden). This is because of being a contributor to meeting economic regulation needs.
What we can all agree with is paying taxes is essential. They can be a financial burden, but publicly-funded services would be no more without them. It would be one struggle after the other. A country cannot run without taxes.
The Nordic Tax Withholding Agreement
The Nordic countries came up with an agreement regarding taxes. This Nordic Tax Withholding Agreement entails transfer or paid taxes and payment of withholding tax. The agreement includes employment income tax, insurance payments, and pension. In addition, the agreement explains in detail how tax authorities in the Nordic countries work.
Furthermore, the agreement clearly indicates that the deduction of withholding tax is in only one country. This could be either the country of employment or the country of residence. Withholding tax knowledge is paramount so as to understand how this agreement works.
Understanding taxation in Nordic countries
It is a fact that Nordic countries attract high taxes. Interestingly, this has not affected the attraction of investment capital. Start-ups still thrive regardless of the high taxes. Nordic’s smart tax policy is the reason for this success. Investing from one fruitful company to another company is what boosts economic growth. Taxation is done for the gains that are realized.
Nordic country firms have established the need for growth capital access. This has a major significance in attracting potential investors. That is why private-sector tax revenues are always on the rise. Taxes in Nordic countries are not predominantly high for existing businesses more so for start-ups.
Nordic countries are pretty business-friendly around the globe. Despite the high taxes, most countries ensure that there is protection for domestic businesses from additional taxes. Nordic countries’ taxes provide a safety net for new businesses and enhance business growth.
The average tax rate in Nordic countries
Nordic countries attract different tax rates. Sweden takes the lead having the highest tax rate. Iceland’s tax rates are at the lowest. Let us explore each of the Nordic countries’ tax rates.
Taxation in Sweden
Taxes in Sweden stand at an average rate of 32.34 %. In the entire Nordic region, Sweden has the highest rates. This has not affected the Swedes at all. They are actually extremely comfortable. To them, high taxes mean value for money.
Furthermore, the Swedish Tax Agency is a government agency tasked with collecting taxes. It also ensures that every citizen contributes to the payment of taxes.
Taxation in Denmark
Denmark follows next with a tax rate of about 32.6%. The country’s citizens are subject to tax on their monthly income. Among the Nordic countries, Denmark is the most expensive to live in.
Though Denmark attracts high taxes, it fully supports business investments. This has played a major role in the country’s economic growth. It has also helped sustain a friendly welfare system that works seamlessly in Denmark.
The tax rate in Norway is about 38.2%. Residents of Norway are liable for tax on their monthly income. This applies to tax residents but there is a limitation to taxation on some types of income.
In Norway, there is a declaration of tax on wealth. This takes place every calendar year by 31st December. Besides that, payment of wealth tax is to the state as also to the municipality.
Finland’s tax rate is about 38.7%. The citizens pay taxes on a substantial amount that they make. Progressive taxation operates in Finland. Thus, it simply means the more money a citizen earns, the higher the payment of taxes.
In as much as the Finnish pays higher taxes, they get the best from the government. For instance, everyone is free to enjoy publicly funded social programs. The state also provides equal opportunities without discrimination.
Tax rates in Iceland stand at about 34.7%. Like other nations in the Nordic region, Iceland’s tax amounts vary. This is determined by the monthly amount earned. For instance, people earning ISK 0 – 370,482 per month pay 31.45%. As for the ISK 370.483 – 1,040,106 per month 37.95%. Additionally, people earning over ISK 1,040,106 per month pay 46.25%.
In addition, employers deduct taxes from their employee’s salaries and pay the tax department. Contractors and independent workers pay their taxes directly. Apart from that, adjusting income thresholds in Iceland takes place time after time depending on inflation.