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Throughout this article, BBCIncorp will walk you through some countries without income tax that you should consider!
How do you lighten your tax burdens?
Taxation remains a topic of constant discussion among entrepreneurs.
A jurisdiction that offers top-notch facilities but imposes high taxes can make doing business or living there difficult. To reduce financial burdens, businesses prefer countries with lower tax rates or tax exemptions.
Individuals and businesses can lighten their tax burdens legally and responsibly in several ways. Two of those are setting up your company in:
- A country with no income tax; or
- A country with a territorial tax regime.
Apart from tax considerations, other factors come into play when choosing an offshore jurisdiction, such as compliance requirements, banking services, and overall reputation. These additional factors make the selection process much more complex.
Top 8 countries with no income tax
Many individuals opt to change their citizenship in search of better opportunities for business growth, particularly to benefit from tax advantages. However, this process can be challenging and expensive.
Instead, numerous business players turn to explore locations that do not levy income taxes. While most countries rely on income tax as a primary source of government funding, some have managed to operate without imposing any income tax at all.
Now, you might be curious, “But how is this possible?”
The answer is quite simple—they have alternative sources of income. For example, in countries like Oman and Qatar, the majority of government funding comes from the oil industry. The same goes for tourism in the Maldives.
With such substantial income from these industries, these countries can afford to eliminate taxes imposed on corporate or personal gain.
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Below are the top countries you should consider when choosing a country to live in or do business without income tax.
Besides its strong infrastructure, the Bahamas emerges as an attractive choice for offshore entrepreneurs due to its no-income tax policy. There is no corporate income tax as well.
As a resident of the Bahamas, you shall enjoy paying zero tax on your earnings, regardless of where the income is derived from. This is because the Bahamas primarily derives revenue from industries such as tourism and offshore services.
Foreigners can obtain a residency permit in the Bahamas with ease
The application fee for permanent residency here is typically around $1000. By investing at least $250,000 in immovable property, you can qualify for a permanent residency permit.
Moreover, the Bahamas also has specific minimum residency requirements, which, once met, grant you permanent residency status and eligibility for tax relief.
The Bahamas offer free trade zone incentives to both entrepreneurs and investors. Particularly, your business can benefit from exemptions on import, export duties, and VAT for eligible transactions.
Furthermore, there are various options for business structures, with the most popular being Bahamas international business companies.
Bermuda is an independently administered location of British Overseas Territory in the North Atlantic Ocean. Corporations in Bermuda are relieved from significant compliance burdens as there are:
- No corporate tax
- No withholding taxes on dividends, royalties, or technical service payments
Several popular types of Bermuda business structures include the limited liability company, the exempted company, or a partnership.
Although Bermuda boasts a well-developed financial industry, you might want to consider its relatively high cost of living and doing business.
The Cayman Islands thriving tourism industry has contributed to the government’s decision to retain it without income tax implications.
There are no corporate or personal income taxes or withholding taxes on dividends, royalties, or interests here. As a result, Cayman is popular with multinational companies to establish their subsidiaries overseas.
The Cayman Islands does not impose direct taxes on its residents. However, obtaining a permanent residence permit can be tough for a foreigner.
Typically, to be eligible for long-term living in Cayman, you must either:
- Settle around $145,000 annually; or
- Invest four times that amount in immovable property or domestic enterprises.
Additionally, the application process might be lengthy, potentially requiring several years before approval.
A Cayman Islands exempted company is a great option for foreign entrepreneurs to incorporate an offshore business. Learn more in our dedicated article!
Saint Kitts and Nevis
Saint Kitts and Nevis is another favorable option for foreigners. In particular, non-resident company does not pay:
- Any tax on income derived from outside the country.
- Taxes imposed on incomes, gifts, wealth, or capital gains.
Only income sourced from within the area will be taxed.
However, a withholding tax of 15% shall be charged on dividends, interest, and royalties paid to non-residents.
Another notable advantage is the straightforward process of becoming a long-term resident in St. Kitts and Nevis with lower costs compared to other jurisdictions.
The United Arab Emirates (UAE) is well known for its excellently stable economy.
There is currently no corporate tax other than oil and gas exploitation companies (up to 55%) or branches of foreign banks (typically a 20% rate), although a 5% VAT tax rate may be applied for certain goods.
Furthermore, the UAE facilitates foreigners to obtain residency visas in the country.
You also have the option to establish a foreign-owned company within one of the UAE’s 40+ free trade zones. Qualifying companies can benefit from a tax holiday ranging from 15 to 50 years, or enjoy zero tax on import duties for goods brought into these zones.
Two prominent jurisdictions in the UAE are the Ras Al Khaimah (RAK) and Jebel Ali Free Zone (JAFZA).
In both locations, foreigners can enjoy 100% ownership of their companies, commonly RAK International Companies, and receive tax neutrality on foreign-sourced earnings.
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Panama is a prime destination for offshore investment thanks to its taxation system and the commitment to creating a business-friendly environment. In terms of territorial taxation, Panama has established itself as a neutral jurisdiction.
It exempts offshore corporations operating within its borders, along with their owners, from paying withholding taxes, income tax, capital gains tax, corporate taxes, local taxes, estate taxes, and inheritance taxes.
For investors seeking to optimize their taxable income, gaining residency in Panama is a promising option.
To become eligible, one must start with a US$5,000 deposit and conduct business in the country for 5 years. Note that you don’t have to maintain a physical presence within Panama for your residency status.
Anguilla is another prime jewel that has built its wealth on luxury tourism, offshore banking, lobster fishing, and remittances.
Under the country’s corporate governance regime, entrepreneurs would commonly set up their Anguilla LLCs here. This structure is highly sought after as an offshore vehicle because of the liability protection and pass-through taxation.
In addition, there are no income taxes, estate taxes, or capital gains taxes.
You can obtain residency status in Anguilla through one of the following ways:
- Invest a minimum of US$750,000 in real estate
- Maintain it for 5 years or make a US$150,000 government donation to Anguilla’s Capital Development Fund.
Furthermore, to become a local tax resident, here’s what you need to do according to the High-Value Resident Program (HVR) in Anguilla:
(1) A flat payment of US$75,000 to Anguilla’s Treasury for a minimum of 5 consecutive years;
(2) Ownership of property worth at least US$400,000 in Anguilla and maintain it throughout your time as a tax resident.
As you can see, there are minimal legal requirements to obtaining residency here.
Bahrain, an Islamic country situated between the Persian Gulf, Saudi Arabia, and Qatar, is a prominent offshore financial hub. It attracts a steady flow of foreign investment, driven by the robust banking and tourism sectors, as well as being home to one of the world’s largest oil reserves.
The country’s income tax policy is highly advantageous, with virtually zero income tax for business owners, relieving your business from filing tax returns. However, this exclusion may not apply to businesses operating in the oil and gas industry.
As part of the Fiscal Balance Programme (FBP), the country has recently increased its long-standing VAT rate from 5% to 10%, starting in 2022. Fortunately, certain core sectors like healthcare, education, construction, and particularly oil and gas remain unaffected.
Expats seeking permanent residency can easily apply through the official government online portal. For investors interested in entering the market through real estate investment, the government offers a new golden Visa scheme.
The entry expenses for business, real estate, and retirees are US$265,000, US$135,000, and US$1,350, respectively.
Check out our offshore comparison tool to decide on the best country for your business. There, you’ll find a clear overview of what each jurisdiction has to offer.
Low-tax countries with the territorial tax system
When operating a business in tax-free countries like Belize or BVI, be prepared for potential changes, such as the new Economic Substance Requirements.
These jurisdictions are adopting more regulations and taxes on certain types of income, and the idea of entirely tax-free countries may become less common in the future.
As an alternative, you should aim for certain low-tax jurisdictions with a higher degree of stability and reputation, such as Hong Kong and Singapore. Both are ranked among the top 5 countries regarding Ease of Doing Business.
Let’s explore what they have to offer!
Hong Kong has adopted the territorial tax system. This means only income generated within the is subject to taxation. Additionally, Hong Kong imposes no dividend tax, capital gain tax, or goods and services tax.
If your business is incorporated in Hong Kong but operates exclusively outside the country, it may be eligible for an offshore tax exemption.
For income generated within Hong Kong, the corporate tax rates are set at 8.25% for the first 2 million HKD of income and 16.5% for the rest.
On October 5th, 2021, the European Union officially greylisted the jurisdiction due to concerns that its taxing regime does not meet international standards of financial transparency.
The recent inclusion was prompted by the existence of legislative loopholes in Hong Kong’s territorial taxation scheme.
The Hong Kong Government has demonstrated its commitment to preventing cross-border tax evasion, with the promise to amend its Inland Revenue Ordinance by the end of 2022 and implement relevant measures in 2023.
Despite these changes, the Government reassures that the integrity of Hong Kong as an offshore financial center will remain unaffected.
Singapore possesses key characteristics of a global financial hub, including liberal rulemaking, diplomatic connections, and a thriving economy.
This country also adopts a territorial tax system. Thus, income generated within the country is subject to a corporate tax rate of 17%.
Income earned outside Singapore is tax-free, but it may be subject to tax when remitted into Singapore. Nonetheless, your Singapore company can qualify for foreign income tax exemptions by meeting specific conditions.
The bottom line
When considering offshore incorporation, several countries with no income tax can be promising (e.g. the UAE, Bahamas, the Cayman Islands, and so on).
Alternatively, you can select low-tax jurisdictions with territorial tax regimes, like Hong Kong and Singapore, both well-known as premier financial and business hubs in Asia.
Regardless of your decision, you must ensure that the jurisdiction’s features align with the business nature. For this reason, it’s advisable to consult with legal experts mindfully.
Should you need more questions, don’t hesitate to drop us a message or email us via firstname.lastname@example.org for practical advice. We are glad to help!
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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