The global decline in top personal income tax rates over the past seven years may be coming to an end due to the need for new sources of budgetary and stimulus funding among governments, according to a survey released Monday by Big 4 accounting firm KPMG International, and that shift may have implications for international assignment programs and future global workforce mobility trends. Ireland was the first country in Europe to significantly boost its maximum income tax levels, followed by Iceland. Similar moves are underway the UK. A comparison ranks Switzerland 13th, behind several eastern European countries, which have a flat tax system, as well as the British Channel Islands, Finland and Cyprus. The average rate in Switzerland last year was 33.7 per cent, up 0.2 per cent on the previous year. The Irish rate, including social security, was 46 per cent.

According to KPMG’s 2009 Individual income tax and social security rate survey, the top average personal income tax rate dropped 0.3 per cent  worldwide in 2009 to 28.9 per cent  from 29.2 per cent  in 2008. However, some countries are already making plans to implement personal income tax rate increases for its top earners, while other countries are examining this option, according to subsequent country budgets and income levies.

“In the current economic environment where countries face increasing budget deficits and need funding for various economic stimulus packages, it is becoming clear that some are turning to those in the highest income brackets amongst their current tax bases to increase revenue,” said Rosheen Garnon, global head of KPMG’s International Executive Services practice and a partner in the Australian firm.

“Our study has recorded a general decline in top personal income rates over the past seven years, but in 2010 we are seeing indications that a reversal may be on the way, as a few countries in the European Union - -  Ireland and the United Kingdom, specifically - -  are already proposing rate increases for its top earners,” she added.

According to the KPMG study, the highest personal income taxes in the world are still paid by the citizens of the European Union (EU). But with the introduction of flat rate taxes in a number of Eastern European countries - -  including Latvia and Poland, which reduced their top rates to 23 and 32 per cent  respectively for 2009 - -  average rates have fallen from 41.1 per cent  in 2003 to 36 per cent in 2009.

“As HR professionals are being asked to re-evaluate the costs associated with international assignment programs, income tax rates become an important consideration when deciding where to send an assignee,” said Garnon. “Assignees also need to be aware of how various taxes will impact their income both at home and in-country.”

“High income earners typically have the talent and credentials to migrate to countries that have lower personal income tax rates and a need for skilled labor, so a shift in personal income tax rates could potentially impact global workforce mobility trends,” she continued.

Denmark - -  when looking at social security and the personal income tax rate together - -  has the highest personal income tax rate at 62.3 per cent. In the Asia-Pacific region, Japan has the top rate at 50 per cent. Chile has the highest rate in the Latin American region at 40 per cent.

KPMG’s 2009 survey also included an analysis of social security rates, specifically examining income tax and social security rates for gross incomes of employees earning 100,000USD and 300,000USD. Social security components can vary significantly by country, employer and employee type.

When taking both the personal income tax rate and social security rates into account for employees earning $100,000, the countries with the highest rates were Slovenia (54.9 per cent ), Croatia (53.5 per cent) and Hungary (48.1 per cent).

For employees earning $300,000, the countries with the highest rates were Slovenia (60.4 per cent ), Denmark (57.1 per cent) and Croatia (54.5 per cent ).

“Social security is often a forgotten tax and many countries are talking about increasing contributions made to these programs,” said Garnon. “HR professionals need to consider social security along with the entire gamut of taxes - -  national, state, municipal, etc. - -  in order to better inform their international assignment program decisions and discussions.”

The study also reviewed contribution requirements (for both employer and employee) for employees earning gross income of $100,000 and $300,000. France had the highest combined rate at approximately 60 per cent  under either scenario, followed by Belgium at 47 per cent and then Hungary and Italy both in the lower 40 per cent  range.

According to the Swiss-info service, last February voters in Zurich decided to abolish tax breaks for wealthy foreigners.

The system is known as lump-sum tax is not based on income and wealth, but on a minimum amount – generally the equivalent of five times the annual rent or the rental value of the house the taxpayer lives in.