How much of a year’s work is spent paying taxes? This varies across Europe but good tax planning can reduce your tax burden, wherever you live.
How long does it take to earn money for yourself instead of the taxman? “Tax freedom day” varies greatly by country, but good tax planning can help reduce your burden, wherever you live.
If you ever had the feeling that you have spent half your working life just paying tax, you are not far wrong. What with income tax, national insurance/social security, capital gains tax, VAT, council tax, excise duties and so on, a considerable amount of our income goes straight to the taxman each year.
Even if you are retired, you are still faced with tax on savings, investments and pensions, not to mention the amount payable in VAT each year. Having paid so many taxes all your life, you will not want to pay more than necessary – that’s why tax planning plays such an important part in protecting your wealth.
Defining the tax burden of typical workers in the EU
For the last ten years, the Institut Economique Molinari has been measuring taxes payable across the 28 EU member states. While it focuses on employees and the tax and social security they pay, it illustrates the general tax burden of each country and how they compare to each other.
The study calculates a “tax liberation day” for each member state – the date on which an employee has earned enough to pay off all taxes for the year. It also identifies the average “real tax rate” for typical workers in each country (gross salary minus all tax liabilities).
2019’s report reveals the average tax freedom day across the EU was 12 June, but results ranged from 8 April to 19 July – a disparity of over 14 weeks! Meanwhile, the difference between the lowest and highest real tax rate was more than double. Remaining at 44.5%, this year’s average rate broke a four-year trend of slightly declining taxes.
How did countries fare in 2019?
Spain’s tax freedom day
According to the study, Spain’s 2019 tax freedom day fell on 8 June, placing it ninth in the rankings. This means that Spanish employees worked for 159 days of the year just to pay their tax bill. While this is the same as the last three years, it is a long way off the 19 May tax freedom day enjoyed back in 2011.
The average gross salary in Spain is €34,469, but after the real tax rate of 43.31%, workers in the country are only left with €19,541 to spend on themselves and their families.
Portugal’s tax freedom day
The study reveals that Portugal’s 2019 tax freedom day landed on 10 June this year, two days earlier than 2018. While this represents a welcome climb to tenth from last year’s twelfth place, it is a substantial 12 days later than 2011 due to the tax rises introduced a few years ago.
This means that for 161 days of 2019, every cent earned by the average Portuguese employee was taken by the government in tax. The average gross salary in Portugal is €22,266, but after the real tax rate of 43.92%, workers in the country are only left with just €12,488 to spend on themselves and their families.
France’s tax freedom day
For the fourth year running, France has the dubious honour of holding the latest 2019 tax freedom day – on 19 July. However, thanks in part to 2019’s reduced social contributions, this is the earliest it has been since the study began – eight days earlier than last year, and ten days sooner than in 2017.
This still means the symbolic date when French workers stopped paying their tax is over halfway through the year – and more than three months behind top-placed Cyprus! French employees worked for 200 days of the year just to pay their tax bill.
France also retains the highest real tax rate of 54.73%. The average gross average salary is relatively high at €55,158, but after taxes workers are only left with €24,970 to spend on themselves and their families.
Despite these results, with good financial planning France can actually be a very tax-efficient place to live, especially for retirees with capital to invest.
The “winners” of tax freedom day: Cyprus and Malta
Cyprus continues to have the earliest 2019 tax freedom day on 8 April, nine days ahead of runner-up Malta on 17 April, with Ireland taking third place at 26 April. When it comes to the lowest real tax rate, Cyprus leads at 26.6% with Malta following at 29.3%.
Tax freedom day in the UK
According to the 2019 study, the UK’s tax freedom day again comes fourth, landing on 8 May, with a real tax rate of 34.94%.
However, many think tanks undertake their own research to calculate their country’s tax freedom day, using different methodologies. While the Institut Economique Molinari looks at income tax, social security contributions and VAT, the UK’s Adam Smith Institute (ASI) measures the entire tax take, including taxes that do not come directly out of the earner’s pocket.
The ASI’s approach places the UK’s 2019 date three weeks later, on 30 May. One day later than 2018’s result, this is the latest date since comparable records began in 1995.
What does this mean for taxpayers?
The Institut’s overall outlook of the research is that ageing populations are putting pressure on pension and healthcare spending for governments throughout the bloc. This does not bode well for future tax cuts; as the population ages and fewer people are actively employed, taxpayers are required to plug the gap.
With under half of the EU’s 513 million citizens in the labour force, the report concludes that “economic growth remains European workers’ best hope against tax increases in the near term”.
These therefore remain taxing times for taxpayers, and not just for workers, as retirees are also faced with higher taxes. Of course, the study research is just indicative of the average taxpayer in each country – higher earners will generally have a later tax freedom day.
In many cases, there are steps you can take to lighten your tax burden, especially on your capital investments and pensions. While we all have to pay our share of taxes, cross-border taxation is highly complex; do not risk getting it wrong or paying more than you have to. Take personalised, specialist advice on the compliant tax mitigation opportunities available in your country of residence and the UK – you may be surprised at how you can improve your tax situation.
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All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.