As the New Year arrives, people often think of 2 things, namely, new beginnings and tax returns. With the max PIT of 39.6% in the US, the jurisdiction is surprisingly not the world’s leader considering that in Aruba, Sweden, and Denmark PIT may reach as high as 55.4% to 58.95%.
Draconian tax jurisdictions are out of whack with countries without an income tax. Below, we will tell you about some of these states and analyze 10 countries with the lowest income taxes in the world, i.e., countries without a personal income tax.
You should keep in mind however, that the lack of PIT does not guarantee that the country’s citizens and tax residents pay no taxes as their governments often come up with other ways to replenish the state budget. Yet, no personal income tax in this or that jurisdiction makes the latter highly appealing for investors.
Let’s take a look at the countries that flourish and succeed with no personal income tax.
United Arab Emirates (UAE)
The Emirates per-capita income of USD 74,400 is among the highest in the world. With neither personal income tax nor capital gains tax, the country is highly appealing for investors and business founders. Even more so that Emirates come with their own Free Zones.
Instead of taxing individuals, the jurisdiction that ranks 7th in the world in crude oil and gas reserves replenishes its budget through income from oil companies. The latter pay as much as 55% of their profits in corporate taxes, while for foreign banks the corresponding figure makes up to 20%. According to OPEC, the share of profits from oil and gas extraction in the country’s GDP reaches 30%.
While foreign employees do not pay social taxes, UAE citizens shall pay as much as 5% of their income in social insurance contributions. In their turn, employers pay 12.5% to 15% in contributions to the social fund used for social support and pension payments. Other indirect taxes include property fees, tolls on toll roads, municipal taxes, and local duties. In the UAE, the alcohol tax rate reaches 30%, while the tax on alcohol sales in Dubai is 50%.
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With its huge natural gas reserves, Qatar is the richest country in the world with the highest per-capita GDP. The country derives its income mainly from gas extraction, as gas deposits here are the 3rd largest in the world. Qatar has made significant investments in LNG, extraction, and export infrastructure necessary to extract and export its gas. The profit tax rate for gas and oil extraction and processing companies reaches 35%. On the opposite side of the spectrum, the jurisdiction has neither personal income tax, nor royalty, profit, capital gains, or property taxes. At the same time, individuals pay social taxes at the rate of 5%, while companies contribute as much as 10% of their profits to the social fund.
To reduce its dependence on oil and gas revenues, the state is about to introduce VAT. Other indirect taxes include a 5% import duty.
Just like its Middle Eastern neighbors, Oman derives the most of its income from oil and gas revenues. About 70% of the state income comes from oil extraction. Although Oman does not impose any personal income taxes, its citizens pay 6.5% of their salaries in social contributions. A 3% stamp duty on real estate acquisition is another liability.
With all its oil revenues, Oman often faces civil unrest and protests among local residents who demand jobs and social benefits. The growing frustrations among local residents result from the fact that foreigners take almost half of the jobs in the country. The state regularly reviews its employment legislation, including the laws that grant work permits to foreigners in order to prioritize Oman nationals in terms of employment.
According to OPEC estimates, Kuwait ranks No. 6 in the world in oil deposits and around 50% of its GDP comes from oil revenues, while in export and state income, the share of oil revenues is above 80%.
With no personal income tax, Kuwait nationals still pay 7.5% of their salaries in social contributions, while employers contribute up to 11% of their profits to the social security fund. Even though the country is among the world leaders in per-capita income, its public officials still protest against low salaries. As a result, the government resolved to increase public sector wages by 25%.
The IMF warns that greater public sector spending may result in lower economic stability. With only 7% of Kuwait residents employed outside of the public sector, bigger salaries of public officials may increase the financial burden on the budget.
Kuwait is no stranger to political turbulence. In Kuwait, the Parliament has changed over 6 times within the last 5 years. Time after time, protests and corruption scandals involving senior government officials flare in the country, while weak communication between the Parliament and the government hinders pursuing a well-balanced economic policy. The IMF recommends that Kuwait introduce VAT together with a transparent and easy-to-understand taxation system.
A popular offshore jurisdiction, the Cayman Islands are a perfect choice for HNWIs. The country imposes neither personal income nor capital gains tax. Even social security contributions are not paid by the citizens.
Yet, employers shall provide their employees, including, inter alia, foreigners who have worked for over 9 months in the country, with a pension plan. Even though the Cayman Islands come with no VAT and other sales taxes, the state has certain indirect taxes like import duties. The latter may be as high as 25%.
Trying to overcome the budget crisis, the state was once about to introduce a personal income tax. The idea was later on dropped after industry protests had flared up. Industry representatives warned that the intended measure would incur an investor exodus. With over 50% of employees being foreigners, the islands could have faced a major crisis should this have happened.
With no personal income tax, Bahrain derives the most of its profits from the Abu Safa oilfield, sharing the latter with Saudi Arabia. Over 70% of all revenue in the country’s budget comes from oil production.
Bahrain nationals pay 7% of their income to the country’s social security fund, while overseas employees contribute 1% only. Employers are obliged to pay 12% of their profits to the social security fund for the Bahrain nationals they employ. In case of foreign employees, the number makes 3%. Other indirect taxes include a 3% stamp duty on real estate sales. Foreign citizens also pay a 10% community tax on the Gulf property rentals.
Regardless of high oil profits, social benefits create a major pressure on the country’s budget. Oil revenues make up over 80% of the Bahrain state budget, and lately the country has been trying to gradually decrease its dependence on oil and hydrocarbons.
The Bermudas are among the world’s most powerful jurisdictions. Living costs in the Bermudas are also sky-high.
Even though the Bermudas come with no personal income tax, employers may demand that employees pay up to half of the 14% payroll tax that employers pay on the first USD 750,000 an employee earns.
Apart from this, employees pay USD 30 to USD 40 per week in social security contributions and the employer contributes the same amount. Other taxes include a real estate tax which makes up to 19% depending on the annual rental value of the land. The latter is determined by the state. The stamp duty of 5% to 20% is levied on property, with the exact amount depending on real estate costs.
The state derives most of its income from customs duties. Foreigners pay up to 25% on the value of things they bring along. Being a low tax country, the Bermudas are a draw for international corporations. Foreigners make over 20 % of the local population. Work permits are issued for 10 years and cost USD 20,000 only.
The Bermudas boast a much higher development level compared to the rest of the Caribbean. They are famous for impeccable roads and a convenient public transportation system. With their pink sand beaches and classy fashionable restaurants, the Bermudas are among the most picturesque and nice countries without taxes in the Caribbean.
Out of the richest Caribbean states, the Bahamas economy is the one most dependent on tourism and its own offshore banking sector.
Import duties bring around 70% of total government revenues. Even though it is a country with no income tax, the Bahamas make local employees pay 3.9% of their salaries (USD 31,200 at max) in social security contributions. Employers pay 5.9% of employee wages to the state insurance fund, while for the self-employed, the figure makes 8.8%. The real estate tax makes 1% in the Bahamas
Even though the Bahamas are a country of affluence, its credit rating remains under pressure. International credit rating agencies believe the country’s tourism and financial service sectors to be at risk due to vague prospects for economic recovery in the US.
Whether or not you will pay a personal income tax in the Bahamas depends on your residence and not your actual citizenship. This is what makes the Bahama Islands a country with no income tax. To get permanent residency in the Bahamas, you shall reside therein for at least 90 days. Expats, in their turn, shall remain home owners for at least 10 years.
You are welcome to benefit from the International Wealth free initial consultations to pick a jurisdiction and change your tax residency:
The world’s top oil exporter, Saudi Arabia does not impose a personal income tax, yet obliges self-employed foreigners to pay 20% of their income in taxes.
Saudi company employees shall pay 9% of their income in social security contributions, while employees contribute 9% more. Other material taxes include the capital gains tax of 20 %.
A major funding source for the government, oil proceeds account for about 75% of the state budget, 45% of GDP, and 90% of export revenues, the OPEC claims.
For foreign nationals who make over one third of the country’s population, the vast oil wealth of Saudi Arabia is of no importance. According to the Saudi government estimates, 9 out of 10 private company employees are foreigners. The Saudi government supports its citizens by introducing measures to alleviate poverty and reduce unemployment
Out of all Asian states, Brunei Darussalam is the only jurisdiction with no personal income tax.
In the absence of PIT, employees still pay 5% of their wages and salaries in social security contributions to the employee trust fund, and 3.5% to the pension fund. In case of non-residents, their salaries are subject to a withholding tax of 20%. Other taxes include a house tax of 12% for structures in Bandar Seri Begawan, the capital city of the sultanate.
Just like in many countries with no income tax, oil and gas revenues are used to finance most of the government spending in Brunei. The country is the fourth largest producer of oil in Southeast Asia. Hydrocarbons account for more than 90% of Brunei’s exports and over 50% of its GDP. The depletion of natural resources gave a boost to economic diversification, with less focus on oil and gas production. Current government plans provide for workforce modernization, unemployment reduction, and strengthening both banking and tourism sectors.
Except for Brunei in Asia, all other countries without an income tax are either in the Middle East or tropical regions. Brunei and 6 Middle Eastern countries make the most profits from oil and gas that bring significant capital inflows thus increasing the GDP. The Bahamas, the Caymans, and the Bermudas at the same time prioritize tourism and high living standards combined with sky-high living costs to bring HNWIs to the country.
However, neither gas nor oil or tourism revenues can be used to finance government expenses in full. This is why citizens have to pay alternative taxes. Most countries demand that employers pay contributions to their social insurance funds.
FYI: most countries without an income tax have a large proportion of foreign employees. The latter do not pay any income taxes, although sometimes this privilege is for the locals only. Oftentimes, countries with no income tax are a draw for foreign nationals who would like to avoid rigorous taxation in their own jurisdictions.For further information and detailed consultations as to the most appealing countries with no taxes where you can set up a business and open a bank account please message the International Wealth consultants at email@example.com.
Is the United Arab Emirates a country with no personal income tax?
In personal income tax terms, the UAE is a country with no taxes. Still, for oil tycoons, the tax rate makes 55%. Apart from this, the country comes with entertainment taxes and import duties.
How do no tax countries finance their residents’ expenses?
Most countries with no taxes source their income and profits from tourism, trade, and international businesses.
Is tax optimization illegal?
Wrong, tax optimization is legal. You are free to legally reside in a country with no income tax. Yet, you should remember that using unfair and/or illegal means for tax optimization and tax reduction purposes is treated as tax evasion, and the latter is illegal.