Wealth tax, also known as equity tax is a tax imposed on an individual’s or an entity’s total net wealth. It applies to all assets including bank deposits, cash, real estate, assets in insurance, financial securities, personal trusts, and ownership of incorporated businesses, less any debts you owe. In most cases, wealth tax applies to people or entities with financial assets above a certain amount. The origins of wealth tax go back to ancient Greece where it was levied on very wealthy Athenians in 400 BC.
What is Wealth Tax?
A wealth tax is a tax imposed on an individual’s net wealth or the value of their total assets, minus liabilities. Wealth tax is sometimes used to reduce the wealth disparity between the rich and the poor. Only 7 countries levy wealth tax since most countries use income tax to raise revenues.
List of Countries with Wealth Tax
There are only 7 countries in the world with a wealth tax. Countries with wealth tax have differences in individual net wealth tax revenues. Factors that cause these differences include the design of the tax (exemption thresholds, taxed assets, tax schedule and rates, and the tax treatment of debts), the distribution of wealth, the taxpayers’ ability to evade taxes, and the effects of other countries’ tax policies. The following are wealth tax countries:
For assets held within Argentina, the wealth tax imposed is progressive from 0.50% on assets above ARS 3, 000, 000 to 1.25% on assets above ARS 18, 000, 000. For assets held outside the country, the tax is progressive from 0.70% on assets above ARS 3, 000, 000 to 2.25% on assets above ARS 18, 000, 000.
Read more: Best ways to tax the rich.
The tax rate in Spain is progressive, from 0.2% to 3.75% on assets above €700, 000 ($784, 000). However, it varies substantially across regions in Spain and can even be lower in some regions. Net wealth tax only applies to taxpayers who are not residents of Madrid. Spanish residents pay a wealth tax on a worldwide basis while Spanish non-residents pay wealth tax only on assets based in Spain.
Belgium has some of the highest tax rates in Europe. The country imposes a 0.15% wealth tax on the securities accounts of individuals with holdings over €500, 000 or $553, 000. The securities accounts can either be trading or brokerage accounts.
The tax applies to Belgian and overseas securities accounts held by both Belgian residents and Belgian non-residents. The financial instruments included in the €500,000 threshold are stocks, warrants, cash bonds, bonds regardless of whether they are listed, and shares in investment companies.
Wealth tax in Norway encompasses all assets owned by the taxpayer. Norway levies a wealth tax of 0.85% of which 0.15% goes to the state and 0.7% goes to the municipality (as of 2020). Net wealth below a threshold of NOK 1.5 million (€152, 000 or $170, 000) per person is not subject to net wealth tax.
Also read: How rich people use debt to avoid taxes.
The Netherlands relies on the Box system for the taxation of individuals. Wealth tax is levied on savings, investments, and real estate property ownership (the property must be located in the Netherlands). It is levied on assets held by Dutch citizens, residents, and non-residents living in the country. The wealth tax rates in the Netherlands are as follows:
- The first €30,360 are not taxed under Box 3
- An annual income ranging between €30,361 and €102, 010 has a tax rate of 0.58%
- A rate of 1.34% is imposed on income ranging between €102,011 and €1,020,096
- Amounts exceeding €1,020,096 have a tax rate of 1.68%
In Italy, wealth tax is imposed on financial investments and real estate properties. Financial assets held abroad without Italian intermediaries by the individual resident taxpayers are taxed at 0.2%. Real estate properties held abroad by Italian tax residents are taxed at 0.76%.
Wealth tax in Switzerland is levied against worldwide assets (except real estate and permanent establishments located abroad) of Swiss residents, but not levied against assets in Switzerland held by non-residents. Wealth tax rates range from 0.05% to 4.5% depending on the city. Tax revenues in Switzerland have been consistently higher than in other countries.
Also read: Do you pay taxes on social security?
Pros and Cons of Wealth Tax
Just like any fiscal policy, wealth tax has both advantages and disadvantages. Some of the wealth tax pros and cons include:
Pros of Wealth Tax
The following are advantages of wealth tax:
- Wealth tax reduces wealth inequality. A wealth tax helps to fund programs that ensure the benefits of economic growth are more evenly distributed, benefiting lower-income citizens. This helps to reduce wealth inequality.
- Wealth tax raises high revenues. When wealth tax is imposed on wealthy individuals in a country, it could bring in substantial revenue which can be used to fund key government projects and help address a country’s fiscal challenges.
- Wealth tax eliminates tax loopholes. In most cases, the wealthy end up paying very low taxes because the tax code in their country does not consider most of their income as taxable income. The wealth tax code is more progressive and it will eliminate or limit these preferences.
- An incentive to motivate you to create more wealth. Since a portion of your wealth is chipped away each year, you will be motivated to invest and be more productive otherwise, your wealth will diminish gradually.
Cons of Wealth Tax
The disadvantages of wealth tax include the following:
- Administrative burdens. Wealth tax can be challenging to administer since calculating a person’s net worth each year based on everything they own is quite difficult. It will take considerable time and resources to determine some valuations. It is also difficult to determine the market value of many forms of wealth.
- Wealth tax could encourage wealthy taxpayers to leave the country. Wealth tax deducted from your net worth can be a considerable expense each year. As such, the very wealthy may move to countries without a wealth tax.
- The very wealthy might try to avoid paying taxes. They can do this by trying to purchase more complicated assets that are harder to evaluate.
Summary of List of Countries with Wealth Tax
The rich people use loopholes within tax laws to legally avoid tax. Hence, many rich people are undertaxed and this becomes a burden to the middle class who have to pay higher taxes to finance government programs. Though wealth tax is hard to implement, when set up right, it can generate enough revenues for the government and also eliminate huge wealth disparity between the rich and the poor.