Global Variations in Rental Income Tax Rates

Foreign rental property investors should be sure to consider the country’s effective rental income tax rates in their analysis of the numbers prior to investing. Huge variations exist …

Foreign rental property investors should be sure to consider the country’s effective rental income tax rates in their analysis of the numbers prior to investing. Huge variations exist in rental income tax rates, from Switzerland’s high of 48.56 percent on a €1,500 per month rental rate to a 0.00 percent rate in the U.K., according to a Global Property Guide study.

Some countries have a high nominal rental income tax rate but offer deductions that significantly reduce that amount. France, for example, has a nominal rental income tax of 25 percent for non-residents, but if the gross rental income on a furnished flat is less than €76,300 per year, deductions of up to 72 percent can be made, amounting to an effective tax rate of only 7 percent, according to the study.

The higher end of the tax spectrum includes Tanzania, Russia, the U.S., Costa Rica, Kenya, Norway, the Philippines, Peru, Spain and Malaysia, among others, according to the study. New Zealand, Mexico, Japan and Puerto Rico were among countries with lower rates.

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High rental income taxes can stunt the growth of property values and, typically, lower investor interest in the country. Switzerland’s high rate undoubtedly deters many investors from even considering the market.

Low tax rates mean larger profits for investors, so countries on the lower end of the spectrum tend to be more attractive to rental property investors.

Of course, investors will need to consider the rental income tax implications in their own home country in addition to those in the country in which they are investing, because some countries, including the U.S., tax foreign income. Some countries have treaties in place that will affect the ultimate rental income tax due. Potential deductions and exemptions may also vary depending on the particular property. To learn the tax implications of a specific transaction, investors purchasing property in foreign countries should seek the advice of a tax professional who is knowledgeable in foreign tax law.

Some of the countries analyzed in the study and their effective rental income tax rates include:

  • Switzerland: 48.56%
  • Tanzania: 31.45%
  • Russia: 30.00%
  • U.S.: 30.00%
  • Costa Rica: 30.00%
  • Kenya: 30.00%
  • Norway: 26.86%
  • Philippines: 25.00%
  • Peru: 24.00%
  • Spain: 24.00%
  • Malaysia: 22.42%
  • Argentina: 21.00%
  • Germany: 15.82%
  • Brazil: 15.00%
  • Canada: 14.87%
  • Hong Kong: 12.16%
  • Australia: 11.63%
  • Croatia: 10.50%
  • Egypt: 10.00%
  • India: 8.11%
  • Israel: 7.50%
  • South Africa: 7.23%
  • France: 7.00%
  • China: 5.00%
  • Puerto Rico: 4.17%
  • Greece: 3.75%
  • Japan: 3.40%
  • Mexico: 3.36%
  • New Zealand: 1.74%
  • U.K.: 0.00%
  • Cyprus: 0.00%
  • Monaco: 0.00%
  • Namibia: 0.00%
  • Jordan: 0.00%
  • Saudi Arabia: no rental income tax
  • United Arab Emirates: no rental income tax
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Percentages based on monthly rental incomes of U.S. $1,500 (€1,500 for Europe)
Source: Global Property Guide, contributing accounting firms

* Countries with a 0.00 percent rental income tax have a nominal income tax that comes out to 0.00 percent when the effective tax is calculated.

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