23 Countries Without Income Taxes
In this article, we take a look at 23 countries without income taxes. For more such countries, go to 5 Countries Without Income Taxes.
The world is full of opportunities. People have always migrated, despite the complications of the decision, in search of a better life. The trend of migration has been on the rise for wealthier individuals. The number has been steadily growing from 12,000 millionaires in 2020 to 25,000 in 2021 and 84,000 in 2022. These numbers, as per forecast, would continue increasing. One of the main considerations for millionaire migrations is the taxation structure.
Globally, income tax is one of the main contributors to government revenue. According to the Organization for Economic Cooperation and Development (OECD), in 2019, the tax on personal income, on average for OECD countries, was 23.49% of overall taxation.
This number increased to 24.07% in 2020. Tax collection accounted for an average of 8.04% of GDP in the OECD countries in 2019 and 8.31% in 2020. Governments' tax rates vary widely between countries — ranging from 55.9% in Denmark — to no income tax in countries like the United Arab Emirates. The global average income tax rate is 30.3%. Thus, the taxation system worldwide is diverse, from high-tax rate countries to tax havens. This diverseness can be attributed to state policies unique to their conditions.
Relationship between taxation rate and government revenue
Taxation is a very pertinent topic as it directly affects every citizen. The highly taxed countries generate government revenue predominantly from taxation. Almost half of the world's income tax contributes 80% to government revenues. These countries, therefore, offer generous benefits and a social welfare system to their citizens e.g. Denmark, Sweden.
On the other hand, countries with low-income tax rates have various other streams of revenue generation. For example, some countries like the United Arab Emirates rely on their natural resources, like oil, as a main source of revenue. These countries don’t have a sole reliance on income tax. Therefore, as the income tax rates lower, the government revenue sources get more diversified to keep up.
The potential benefits of zero income tax
More disposable income, better lifestyle
One of the main benefits of lower or no income tax is the chance of a better lifestyle. Increased spending ability for citizens could enhance their standard of living and enable them to lead a more comfortable life. Many countries have progressive income tax policies. In the USA in 2017, the top 1% of taxpayers paid an average federal income tax rate of 26.76 percent while the rest paid an average rate of 11.4. Since citizens earning more are taxed higher than those earning less, they are left with less disposable income than they would have had in zero-income tax countries. Having more money to spend, lifestyle improves. The UAE has been attracting wealth and talent under its taxation policies.
Encouraged investment, increased productivity, and better competition.
Countries with zero income tax could encourage investment and create more job opportunities. The UAE residence by investment program is a very good example of this. The income tax rate in UAE has been a main source of attraction for many investors to turn to and invest. Countries sometimes opt for no income tax to encourage foreign investment. The authors of a 2014 report by the World Bank titled "Investing Across Borders: Taxation and the Challenges of Investment" discussed how countries use tax incentives to attract foreign investment. This report claimed that this holds even for countries with a history of political instability.
High compliance, low evasion
With zero income tax rates, compliance with tax policies automatically increases. Even in no-income-tax countries where other taxes like corporate are imposed, the overall tax burden is low. As a result, the lower tax burden encourages citizens to meet the taxation criteria. Thus, high compliance and low evasion result from these policies.
Methodology
Low-income tax rates are different from zero tax rates. In low-income tax rates, some form of low-rate taxation exists on income. These income tax rates are lower than 10%. Whereas in countries with zero income tax, no income tax exists. The citizens are entirely income tax-free. Despite having several potential benefits, zero tax rates do not necessarily entail a better standard of life. There are almost twenty-three countries that have zero tax policies. These countries have considerable diversity regarding their geographical locations, history, context, and reasons for no income tax. By analyzing the reasons for no income tax, a better understanding of the quality of life in these countries could be gauged.
23. Somalia
Somalia has no flat income tax rate but the country is effectively collapsed, highly volatile and dangerous. It is located in the Horn of Africa.
22. Vanuatu
The economy relies mainly on tourism, agriculture, and fishing. It has a small population, and the government has adopted policies to ease citizenship process while attracting foreign investors. The government relies on other sectors and taxes for revenue instead of income tax.
21. Monaco
This city-state is located on the French Riviera and is one of the smallest countries in the world. It is considered a tax haven; however, companies will be charged a 33% tax on profits unless three-fourths of profits are generated within Monaco. The country's economy is very developed and has been attracting individuals from across the globe. French is the dominant language.
20. Brunei
Brunei is also an oil-rich country, with its economy heavily reliant on oil exports. This revenue from oil enables the country to have zero income tax while also providing its citizens with quality education and health care. It is located in Southeast Asia, with the South China Sea to the North. It is one of the wealthiest countries in the region.
19. Antigua and Barbuda
This beautiful country is in the Caribbean with its bright sandy beaches and clear waters. The low-income tax rates have been very successful in attracting foreign investment and tourism.
18. Bahamas
Bahamas is a small country located in the Caribbean Sea. It is known for a high standard of living and beautiful vacation sports. The government generates most of its revenue from tourism. Furthermore, the financial sector forms 15% of the entire GDP.
17. Maldives
Maldives has no flat income tax rate. A personal income below or at MVR 720,000 is not taxed at all. However, personal income of up to MVR 1,200,000 is taxed at 5.5%, with income of up to 2,400,000 taxed at a rate of 15%. The main contributions towards the GDP come from tourism and the fishing industry. The beautiful landscapes and rich cultural heritage have attracted tourists worldwide. The country blends South Asian, Arab, African, and Islamic traditions.
16. Oman
Oman is on the Southern coast of the Arabian Peninsula. While its economy heavily relies on oil and gas exports, it has attempted to diversify revenue generation through tourism, fishing, and agriculture as well. Oman has a strong economy and historical tradition. Arabic is the official language.
15. Bahrain
Bahrain is an archipelago generating almost 85% of its total revenue from the export of oil. It is located in the Persian Gulf, with other oil-rich countries like Saudi and Qatar as neighbors. The country's reliance on oil has enabled it to impose zero income tax.
14. Kuwait
Kuwait is another country heavily dependent on oil production. Petroleum accounts for 92% of the country's GDP. This country has other oil-rich countries like Saudi and Iraq as its neighbors. The oil reserves of the country have made it one of the wealthiest countries in the entire world. The government also spends heavily on development projects and provides quality education, healthcare, and infrastructure. It also has a rich tradition and cultural history heavily influenced by Islamic and Arabian values. It is marked by beautiful beaches and deserts, providing another attraction and revenue source through tourism.
13. Qatar
It is very similar to Kuwait as it also has oil as the main source of income. However, other industries also form a main component of Qatar’s economy. It is one of the wealthiest countries and contributes highly to infrastructure and development.
12. UAE
It is a federation of seven Emirates having a strong and diversified economy. The economy mainly consists of revenue generated by oil and gas exports. The government has adopted a no-income-tax policy to attract foreign investment. The no-income tax policy and programs like citizenship by investment have attracted talent and wealth worldwide. The UAE has emerged as one of the main centers for businesses and development.
11. Turks and Caicos
It is a British overseas territory located in the Caribbean Sea. The main revenue sources are the tourism industry and offshore financial services. There is no income tax because the economy relies mainly on tourism, and this taxation policy attracts tourists. Other forms of taxes, however, are imposed and collected. These are one of the safest islands in the Caribbean.
10. Wallis and Futuna
It is a French overseas territory located in the Pacific Ocean. 80% of Wallis and Futuna's earnings are from agriculture, livestock, and fishing. Instead of having income tax and the French taxation system is imposed. The taxes are paid directly to the French government, but no special income tax exists.
9. Cayman Islands
The Cayman Islands are also a British overseas territory that derives most of its GDP from tourism. It has been estimated that almost 70% of the entire GDP comes from the tourism industry. This strong contribution of the tourism sector to the GDP has enabled the country to have zero tax policies. The residents also enjoy a very high standard of living despite being in a remote location. The territory is made up of three main islands. The official language of the country is English. The islands' natural beauty has been the main source of attraction for tourists, with beautiful beaches, coral reefs, and crystal-clear waters.
8. Bermuda
It is one of the British overseas territories. It is a popular tourist attraction, with tourism as a main contributor to the country’s GDP. According to CIA reports, despite having the main part of GDP being collected from tourism, the financial and services sector account for most of it. The official language of the country is English.
7. Norfolk Island
It is a self-governing territory of Australia in the Pacific Ocean. The economy is heavily reliant on tourism and agriculture. It is a beautiful country with significant monuments and UNESCO heritage sites. It also has a focus on the production of gourmet foods. English is the official language. The country focuses on sustainability and practices a strong commitment to these ideas.
6. Pitcairn
It is located between New Zealand and Peru. It has the smallest population of any inhabited territory at only 50 people. It makes its revenue from tourism, fishing, and handicrafts. The small population and strong tourism portfolio are the main reason for the no-income-tax policy. The low-income tax rates attract wealthy individuals from across the globe.
Click to continue reading and see 5 Countries Without Income Taxes.
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Disclosure: none. 23 Countries Without Income Taxes is originally published on Insider Monkey.
