Copenhagen most expensive place when tax is taken into account
A glass of beer in Copenhagen is notoriously expensive, but it might be the dearest in the world for wealthy expats once Denmark’s high levels of personal taxation are taken into account.
A new report has used the price of a beer to illustrate the world’s most expensive city to live in for higher-rate taxpayers. Sovereign Group, the corporate and trust service provider, has re-interpreted data published by the Economist Intelligence Unit (EIU) and the OECD in the context of income taxes around the world.
For example, if one paid a nominal $10 for a pint of beer in Los Angeles, and the top local tax rate was 50 per cent, “it would be clearly be necessary to earn $20 to purchase that beer out of employment income”, the Sovereign report said.
However, paying $15 for a pint in George Town, the capital of the Cayman Islands, which has no personal taxation means that “an employed person living in Cayman would need to earn only $15 to purchase that beer” meaning it would be cheaper in real terms. Based on this logic, the researchers assumed that the income used to buy a beer was subject to the top rate of income tax applicable to earned income in that city.
Copenhagen is famed for its expensive beer — at up to £8 a pint — but the personal tax rate for the wealthiest is almost 60 per cent. New York and Tokyo are ranked second and third for wealthy workers, according to the Sovereign Worldwide Cost of Living Index, followed by Osaka, Paris and Reykjavik.
Singapore, which tops the EIU’s worldwide cost of living index, comes a relatively lowly 13th. Higher-rate taxpayers face personal taxes of just 20 per cent in the south-east Asian city state. The EIU devises its list on the basis of the comparative costs of 160 products and services in cities around the world.
Yet for many, the finances of a move abroad are not just about tax — or beer prices — says Michael Lavin, founder of Expat Wealth Advice. For those moving jobs within the EU, Brexit is a growing concern. “People haven’t stopped moving, but they are more cautious as they’re worried about expat rights post-Brexit,” he said.
When it comes to gauging the costs and merits of different locations, quality of life, property prices and schools are also critical factors, says Jason Porter, director of Blevins Franks, the law firm. “It is about trying to strike that happy balance,” he says.
London was ranked eighth in the alternative index, and its comparatively low levels of tax are a definite draw for mobile international workers, says Howard Bilton, chairman of Sovereign, which carried out the research.
“We were quite surprised by the results. Hong Kong and Singapore, which are the world’s most expensive cities [according to the EIU], drop out of the top 10 altogether when you factor in the tax.”
And what about expats considering a career abroad who have a particular thirst for cold lager? “You’d need a mortgage to buy a pint of beer in Copenhagen,” Mr Bilton adds.