Exploring The Tax Dynamics of Residing in the World’s Wealthiest Cities

The world’s wealthiest cities provide a vibrant and exciting lifestyle for global citizens, with the best options to choose from, whether arts and culture, quality of life, or safety and security. Needless to say, moving to any new place will always have a tax element for those who live in one place but work or earn income elsewhere or have capital invested in multiple jurisdictions. When looking at wealthy cities specifically, there is a tax angle that may have more variability than would be expected, and needs taking into account during relocation planning.

Understanding how local taxes are charged

Most of the best cities in the World’s Wealthiest Cities Report 2024 have a great public environment, with fine parks or roads, and well-run and efficient schools and hospitals. In most countries, local services are funded at a local level, and so an understanding of the local tax environment is a key aspect to understanding the true costs of living in a global city.

Broadly speaking, local public services can be paid for by a combination of charges, local taxes, and central government funding. At the city level, local taxes can work in a variety of ways. Most commonly, they would be in the form of property taxes, typically levied on real estate owned or leased by the individuals living in that city.  

Property taxes for owners versus renters

These can vary significantly. A USD 2 million home in prime New York City, the wealthiest city in the world in 2024 — assuming you can find one — will have a property tax charge maybe 10 times what a similar home in London, the 5^th-wealthiest city, would attract in council tax, with the latter capped at a relatively low property value while New York’s is uncapped. Whereas in France, with Paris and Île-de-France taking the 7^th spot on the wealthiest cities list, the amount is linked to the size of the property. 

For a rental, the person who bears local taxes is also something to watch out for if you are a investor looking into international property acquisition. In the UK, the council tax is to the account of the tenant, whereas in Spain for example, it may be part of the rent. Some places, like China, don’t levy these taxes on residential real estate occupied by the owner, but do charge if it is leased out.

How income taxes come into play

Some countries extend their income tax systems down to a local level. The US has federal and state income taxes. However, 14 states also permit counties to levy a personal income tax, although the local income tax is typically only charged on earned income.

Switzerland has something similar, with cantonal and municipal taxes also levied as part of the income tax process, whereas Japan has an earmarked local government tax allocated at prefectural and municipal level, which is 10% of income — on top of the national income tax top rates of 40–45%.

As local governments look to deal with challenges such as congestion and air quality, road pricing and parking charges can be used to address these issues. They can then also become a significant part of local government revenues, and hence part of the cost of living in one of those global cities. Although still relatively rare, these kinds of charges are much discussed as part of the broader climate debate.

The difference between city and national taxes

There is much more variety in the tax systems at a city level than at national level, where income tax rates and VAT rates can look pretty similar within broad parameters. Local funding is much more variable than at a national level. 

Having great public services and spaces needs to be funded somehow, but the different approaches are very telling. Next time you land in New York and wonder why France had much better trains, part of the answer is because of the local tax rates…