For the eleventh year running, Estonia has topped the newly published 2024 International Tax Competitiveness Index (ITCI), maintaining its position as the most competitive tax system in the OECD. Estonia’s lead is largely attributable to its unique model of taxing only distributed profits.
The 2024 edition, released by the Tax Foundation in October, once again scores Estonia at 100 out of 100. Below we look at how the ranking is built, which countries moved in 2024 and what the five scoring categories reward — and why the Estonian tax code keeps coming out on top of the OECD tax ranking.
How the ITCI Works: 40 Indicators in Five Categories
Each year, the International Tax Competitiveness Index evaluates how the tax systems of countries belonging to the Organisation for Economic Co-operation and Development (OECD) support economic growth and investment, and how neutral they are toward different types of business activity.
The 38 OECD countries are compared across more than 40 indicators in five core categories:
- Corporate tax;
- Individual income tax;
- Consumption taxes;
- Property taxes;
- Cross-border tax rules.
The Index is designed to highlight the nations with efficient and transparent tax systems that can generate sufficient revenue for public needs while creating the fewest barriers to economic activity. Two principles underpin the scoring: competitiveness (low marginal rates on mobile capital) and neutrality (raising revenue with the fewest distortions and the fewest targeted preferences).
2024 Results: Estonia First for the Eleventh Year
Out of 38 OECD member states, Estonia ranks first in 2024 for the eleventh consecutive time, with a perfect score of 100 — in the Tax Foundation’s words, the best tax code in the OECD. It is followed by Latvia, New Zealand, Switzerland and Lithuania. Colombia remains at the bottom of the ranking, with Italy, France, Portugal and Iceland also appearing at the lower end of the Index.
| Rank | Country | Score | What drives the result |
|---|---|---|---|
| 1 | Estonia | 100 | Tax on distributed profits only, land-only property tax, territorial system |
| 2 | Latvia | 92.2 | Adopted the Estonian corporate model; efficient taxation of labour income |
| 3 | New Zealand | 84.2 | Flat, low-rate income tax; one of the broadest VAT bases in the OECD |
| 4 | Switzerland | 83.6 | Low corporate rate (19.7%), low broad-based VAT, first in cross-border rules |
| 5 | Lithuania | 79.5 | 15% corporate rate, generous capital allowances, flat individual tax |
| 34 | Iceland | 55.9 | Full-value property tax, highest R&D subsidy rate in the OECD |
| 35 | Portugal | 53.7 | 31.5% corporate rate, six corporate brackets, digital services tax |
| 36 | France | 50.2 | High corporate and individual rates, surtaxes, narrow VAT base |
| 37 | Italy | 47.2 | Multiple property levies, wealth tax on selected assets, one of the narrowest VAT bases |
| 38 | Colombia | 45.7 | 35% corporate rate, net wealth tax, financial transaction tax |
The pattern at the bottom is consistent: the five lowest-ranked countries all levy combined corporate tax rates above the OECD average, and most of them combine that with layered property and capital taxes or numerous exemptions and credits that add complexity without adding revenue.
Key Changes and Trends in 2024
In 2024, many OECD countries introduced changes to their tax systems, and the ITCI 2024 reflects them in the new positions of the tax ranking. Some countries improved their standing by reducing the tax burden and simplifying the rules; others lost ground because of higher rates and more complex tax mechanisms.
| Country | What changed in 2024 | Rank 2023 → 2024 |
|---|---|---|
| Austria | Completed the planned reduction of its corporate tax rate to 23% and made accelerated depreciation for buildings permanent. | 17 → 15 |
| Canada | Began phasing out full expensing for capital investment, introduced a Digital Services Tax (DST) and raised its capital gains inclusion rate. | 15 → 17 |
| Czech Republic | Ended extraordinary depreciation for machinery and raised its corporate tax rate from 19% to 21%. | 5 → 8 |
| Germany | Partially reinstated accelerated depreciation for machinery and relaxed the limits on loss carryforwards. | 18 → 16 |
| Slovenia | Increased its corporate tax rate from 19% to 22%. | 16 → 22 |
| United Kingdom | Made full expensing for plant and equipment a permanent feature of the tax code. | 31 → 30 |
| United States | Continued the phased rollback of 100% bonus depreciation (60% in 2024); cross-border position improved as other countries adopted Pillar Two minimum-tax rules. | 23 → 18 |
These shifts show that even modest adjustments can significantly affect a country’s attractiveness for businesses and investors. Successful reforms, such as those in Germany and the United States, show that flexibility and adaptation to global trends can improve ranking positions. At the same time, raising rates and eliminating allowances — as seen in the Czech Republic and Slovenia — leads to a decline in tax competitiveness.
The global minimum tax enters the scoring
From the 2024 edition the Index tracks whether a country applies a Pillar Two income inclusion rule, an undertaxed profits rule and a domestic top-up tax. Countries that adopted them in 2024 added complexity to their cross-border rules; the United States, whose older GILTI and BEAT provisions are scored in their place, gained five places largely because the field around it became more complex, not through domestic reform.
Corporate Taxation: Rate, Cost Recovery and Complexity
When assessing corporate taxation, the Index considers both the headline corporate tax rate and the quality of cost-recovery mechanisms (how quickly and fully businesses can deduct capital investments). It also accounts for special preferences and the complexity of the system, including patent boxes, R&D incentives, digital services taxes, multiple tax brackets and surcharges.
Corporate income taxes are often cited as one of the most influential factors affecting investment levels and economic growth. OECD analysis finds that corporate taxes hinder growth the most, personal income taxes have a moderate negative effect, and property taxes have the least impact.
Where Are the Highest Corporate Tax Rates in the OECD?
Across the OECD, the average combined corporate tax rate is 23.9%. The highest is in Colombia (35%), while the lowest is in Hungary (9%), followed by Ireland (12.5%) and Lithuania (15%). Other notable high-rate countries include Portugal (31.5%), as well as Australia, Costa Rica and Mexico, each at 30%.
Estonia’s corporate score, notably, does not come from the rate itself — at 20% it ranks only sixth on that sub-indicator, behind five countries with lower headline rates. What lifts Estonia to second place in the corporate category (just behind Latvia) is full cost recovery: because the tax applies only to distributed profit, every euro of investment is effectively deducted in full, and there is no patent box, R&D subsidy or digital services tax to complicate the picture.
Individual Taxes: Rates, Progressivity and Double Taxation
In evaluating personal income taxes, the Index measures:
- Rates on earned income;
- Progressivity (including the income threshold at which the top rate applies);
- The ratio of marginal to average tax rates;
- Complexity (surcharges, social contributions, etc.);
- Dividend and capital gains taxation, i.e. the degree to which corporate earnings are taxed twice.
High marginal rates tend to create greater distortions. The report notes that Slovenia’s all-in top marginal rate reaches 67.5%, whereas Estonia’s is only 21.6%. It is also important to consider the income level at which the highest bracket applies and how overall tax policy either encourages or restricts additional work. On the double-taxation side, Ireland has the highest personal dividend tax rate in the OECD (51%), while Estonia and Latvia sit at 0% because profit is taxed once, at the corporate level.
Consumption, Property and Cross-Border Taxes
The remaining three categories carry less weight in growth terms, but they often decide the mid-table: a broad VAT base, a land-only property tax or a clean territorial regime can lift a country several places.
Consumption Taxes: VAT Rate and Base
Value-added tax (VAT) is one of the most stable revenue sources for governments. The key factors are the VAT rate (which ranges from single digits to 27% across the OECD, averaging 19.1%) and the breadth of the tax base (the share of final consumption that is actually taxed). The broader the base, the fewer the distortions. New Zealand has one of the broadest VAT bases and a relatively low rate (15%), scoring highly in this category. In contrast, Italy applies a 22% VAT rate to one of the narrowest bases, lowering its score.
Property Taxes: Land Only or the Full Value?
This category encompasses taxes on property — how the real estate tax base is determined (land, buildings or full property value) — as well as inheritance, gift, wealth and financial transaction taxes.
Systems that tax only the land (as in Estonia) and impose no additional capital-based taxes are more neutral. In countries with multiple property levies (such as Italy and Colombia), the total burden on assets is higher, which drags down the tax competitiveness of the whole system.
Territorial Principle: The Key to High Competitiveness
Cross-border tax rules also affect a country’s competitiveness ranking. Key aspects include the approach to taxing foreign-source income (worldwide vs. territorial), withholding rates on dividends, interest and royalties, the scope of tax treaties and anti-avoidance rules. Countries with a territorial approach and low or zero withholding rates typically score better. Additional surcharges and global minimum tax requirements add complexity, and the adoption of Pillar Two rules (including domestic top-up taxes) now plays a role in the rankings as well.
Tax-Free Reinvestments: The Secret of Estonia’s Success
According to the 2024 report, Estonia retains its top spot thanks to the design of its tax system, particularly its approach to corporate taxation, where reinvested profits are exempt from income tax. Under the Estonian tax system, corporate income tax is levied only when profits are actually distributed as dividends; retained and reinvested profits remain untaxed. Four features together explain the perfect score:
| Factor | How it works |
|---|---|
| Corporate tax on distributed profits only | The nominal rate applies only to dividends. Reinvested profits remain untaxed, giving companies more flexibility in financing growth and making Estonia one of the few OECD countries with unlimited loss carrybacks by design. |
| Flat personal income tax | A single rate simplifies the system and reduces distortions. Dividends, already taxed at the corporate level, face no additional personal income tax. A phase-out of the tax-free allowance adds a modest progressive element without extra brackets. |
| Property tax on land only | Owners pay no tax on the buildings themselves, which prevents double taxation of capital and encourages construction and property improvements. There are no inheritance, gift, wealth or property transfer taxes either. |
| Territorial system for foreign profits | Estonian companies generally pay no domestic tax on profit earned abroad (subject to basic conditions), simplifying international expansion. |
Which rates the 2024 Index measured
The 2024 edition assessed the 20% corporate and 20% personal income tax rates that apply during 2024. Under the amendments already adopted, both rates are set at 22% from 1 January 2025 — see the overview of dividend taxation in Estonia in 2025. The change does not touch the feature the Index rewards most: zero tax on undistributed profit.
Thanks to these features, Estonia achieves outstanding results in corporate taxation, individual taxes and property taxes: first in the property category, second in both corporate and individual taxes, and ninth in cross-border rules. Its weakest category is consumption taxes (18th), where the standard VAT rate of 22% sits above the OECD average. Even as international tax rules evolve — such as the introduction of global minimum taxes — Estonia remains one of the most attractive jurisdictions for business and investment.
Simplicity and Transparency: The Key to Success in the ITCI
Estonia’s example serves as a benchmark for countries seeking to reform corporate and individual taxation. Latvia (2nd place) has already adopted a similar distributed-profits tax. The experience of the top-ranked countries — Estonia, Latvia, New Zealand and Switzerland — underscores that not only low nominal rates but also straightforward, transparent tax structures are crucial.
For businesses and investors evaluating jurisdictions, the Tax Foundation’s tax competitiveness ranking provides valuable insight into long-term costs and regulatory risks. In this context, Estonia remains the most competitive tax jurisdiction in the OECD for investors, owing largely to its unconventional yet highly effective corporate taxation model.
Eesti Firma provides legal and consulting services for companies operating in various markets, including digital assets. We offer guidance on all matters related to the tax systems of Estonia and Lithuania and current EU regulation — from company formation in Estonia to ongoing accounting and tax compliance.
Frequently Asked Questions
The ITCI is an annual ranking published by the Tax Foundation that compares the tax systems of the 38 OECD countries across more than 40 indicators in five categories: corporate tax, individual income tax, consumption taxes, property taxes and cross-border rules. It measures competitiveness (low marginal rates) and neutrality (few distortions and preferences). The 2024 edition was published in October 2024.
Four features: corporate income tax charged only on distributed profit, a flat personal income tax that does not apply to dividends already taxed at the corporate level, a property tax levied on land value only, and a territorial regime that exempts foreign profits. Estonia scored 100 and ranked first in property taxes and second in both corporate and individual taxes.
The United States rose five places (23rd to 18th) as other countries adopted global minimum-tax rules. Slovenia fell six places (16th to 22nd) after raising its corporate rate to 22%, and the Czech Republic dropped from 5th to 8th after a rate increase and the end of extraordinary depreciation.
The 2024 Index assessed the 20% rate that applies during 2024. The 22% rate that takes effect on 1 January 2025 will be reflected in later editions, but the feature the Index rewards most — zero tax on retained and reinvested profit — remains in place, as do the land-only property tax and the territorial treatment of foreign income.
Three sub-categories: the combined top corporate rate, cost recovery (how fully investment costs can be deducted, plus loss carryover rules) and incentives and complexity (patent boxes, R&D subsidies, digital services taxes, surtaxes and multiple brackets). Estonia and Latvia are scored as allowing 100% cost recovery because their tax applies to cash-flow distributions.
No. Estonia is first in property taxes and second in corporate and individual taxes, but only 18th in consumption taxes because of its 22% standard VAT rate, and ninth in cross-border rules. The overall score of 100 reflects the balance across all five categories, not a clean sweep.
