Income taxes are a significant source of governments worldwide to finance social projects and other government expenditures.
While most countries rely on income taxes to fund essential services of the government, some countries have minimal or no income tax at all. Their economies rely heavily on tourism and natural resources, such as natural gas and oil, to support their governments.
Countries with no taxes are usually located in the Caribbean islands and the oil-rich Gulf states. They remain a popular destination attracting foreign investors and expatriates. Since they can generate plenty of money from investments, tourism, and other industries, they allow their residents to live tax-free.
Even though there’s no universal definition of a tax haven, a tax haven refers to any country offering low taxation rates, or even, zero tax. It allows individuals and corporations to escape the rules of law in terms of taxation where they reside and operate their businesses.
Some individuals even change their citizenship and move overseas to avoid paying taxes. However, obtaining citizenship in some countries is also difficult. The process isn’t usually easy because of the cost and lengthy procedures. Instead, most business players are currently eyeing countries with no taxes.
Living Tax-Free: Is It Possible?
In most countries, income taxes are the primary source of government funding. However, there are countries where citizens live tax-free. You may wonder, “is it possible?”
The short answer is yes. In Qatar, for example, the petroleum and natural gas industry is the cornerstone of their social services and other government projects.
The same is true with the Maldives, where the primary source of funding is tourism – the largest economic industry in the country. The revenues they get from these sources are sufficient to allow the citizens to live tax-free.
7 Countries With No Taxes
If you’re interested in moving to a country with no taxes, the first step is deciding where to relocate. After all, there are many benefits of tax-free countries. Here are 7 tax-free countries that are worth considering.
With a total population of 540,542 people dispersed across 187 islands, the Maldives have been prosperous in growth, infrastructure, and connectivity.
The country provides affordable yet high-quality services for the Maldivian people, resulting in notable health indicators, a literacy rate of approximately 100 percent, and a life expectancy of more than 78 years.
The Maldives’ strong tourism industry is the primary driver of poverty reduction and economic growth. The country’s annual growth rate of real Gross Domestic Product (GDP) is 6.3 percent on average from 2015-to 2019, which is faster than other middle-income economies.
In 2016, only 8.2 percent of the population lived below the national poverty line, and the unemployment rate was only 7.2 percent in 2020.
Thanks to the country’s high-end tourism, it gives a reason for the government to levy taxes on its citizens. However, establishing citizenship in the Maldives is nearly impossible right now.
While the Maldives accept visitors from all countries, it doesn’t support any program for permanent residency offered to foreigners. In fact, they have one, but you need first to become a Sunni Muslim.
According to the 2021 economic data of Global Finance Magazine, Qatar is the 4th richest country in the world with a GDP per capita of $100 037.
With a population of 2.881 million people, Qatar’s enormous oil and gas reserves make it a marvel of modern architecture, fine cuisine, and luxury shopping.
In fact, the country relies heavily on oil and gas reserves, and it accounts for 13 percent of the global supply. In 2020, the natural resource brought in $29.76 billion in revenue to Qatar, with less than three million residents annually.
This is why Qatar levies no taxes from the residents on their personal incomes, profits, property, dividends, and royalties. However, businesses in petrochemical industries are faced with a flat tax rate of 35 percent.
Additionally, Qatar nationals still need to pay 5 percent of their personal income for their social security benefits.
The country had 0 percent of the population living below the poverty line in 2019, while the unemployment rate was only 3.45 percent in 2020.
While the country allows the naturalization of foreigners, it rarely grants citizenship even to foreigners with Qatari mothers. In some other cases, it grants citizenship to those meeting the requirements specified in their law.
Monaco is one of the wealthiest countries in the world, with an average real GDP per capita of $7.424 billion and a small population of 39,244 people in 2020.
One-third of its population, which is estimated to be 12,261 people, are millionaires, based on the 2019 wealth report by Knight Frank.
The country’s economy is focused on finance, tourism, and commerce. It also doesn’t collect personal income taxes from the residents. A person living in Monaco for at least six months becomes a resident and is exempted from the income tax payments.
The residents don’t pay taxes on owned properties in Monaco, but for rented properties, the government collects one percent tax plus estimated service charges annually.
The country doesn’t impose a general corporate tax. Companies with operations outside the country and over 25 percent profits are subjected to taxation.
Additionally, all residents need to pay taxes in the form of value-added tax (VAT) with a rate of 19.6 percent on all kinds of goods and services.
These tax laws and benefits make Monaco very appealing for foreign investors and expatriates.
Luxembourg is hailed as the wealthiest country in the world with a real GDP per capita of $126,569, based on 2021 economic data by Global Finance Magazine. This very rich yet small country of only 630,000 people has so much to offer to its citizens, tourists, and investors.
As a tax haven, Luxembourg highly prioritizes privacy. Only the fund owners sign off on sharing financial details. This country takes much effort to ensure the security of its clients. It also gives favorable tax rates to domestic corporations by offering tax breaks and exemptions.
This tax haven status resulted from the country’s business-friendly policies. If you want to move into Luxembourg, it’s now easier to acquire citizenship after the 2017 April Law, as long as you reside in the country for over five years in addition to other requirements.
The Kuwaiti dinar is hailed as the world’s most valuable foreign currency. Thanks to the country’s substantial oil production, Kuwait is the fifth richest country worldwide in terms of gross national income per capita. The country’s wealth resulted from the combination of its petroleum-based economy and its financial services for Gulf Cooperation Council (GCC) countries.
According to the Organization of the Petroleum Exporting Countries (OPEC), Kuwait’s oil and gas sector comprises around 40 percent of the country’s GDP and 92 percent of export revenues.
The country’s tax haven status stemmed from its high dependence on the oil and gas industry.
Even though the country levies no personal income taxes from its citizens, Kuwaiti nationals still need to pay 7.5 percent of their income for social security benefits, and employers to contribute an 11 percent.
Many expatriates are attracted to move to Kuwait because of high wages that are comparable to international standards.
The country has an average gross salary of over $50,000 annually with no personal taxation, which applies to citizens and expatriates. This means the take-home salary after tax is indeed high.
So, if you can afford to move to Kuwait, the country offers higher living standards with great amenities.
According to Nations Online Project, Bermuda has one of the highest per capita incomes worldwide. Its real GDP per capita in 2019 was $117,098 and a population of over 60,000 people.
The country’s wealth is attributed to tourism and international business consisting of insurance and offshore financial services.
These financial services account for over 85 percent of the country’s GDP, while the tourism industry has a considerable share in the country’s total employment.
Like other tax-free countries, employees still need to pay tax for social security benefits, which are matched by their employers. Residents also need to pay annually up to 19 percent tax for rented properties.
Although it’s one of the richest countries worldwide, the cost of living in Bermuda is also among the world’s highest.
Additionally, another source of revenue for the government is the taxes paid on imported goods.
For instance, if you move to Bermuda, you need to pay 25 percent of the total costs of the goods you bring. Given that this rate is relatively low, Bermuda has a big draw since over 20 percent of the country’s population are foreign-born.
It’s also good to note that acquiring a 5-year work permit in Bermuda can cost you $6,200.
With a population of 393,248 people in 2020, the Bahamas is a high-income country with a real GDP per capita of $11.25 billion. The government levies no corporate and personal income taxes, making it an excellent option for most offshore seekers.
If you live in the Bahamas, you need not pay taxes on your earnings, regardless of the income source. This tax haven status stemmed from the country’s significant offshore and tourism industries earnings. So, it doesn’t depend heavily on income tax revenues as other countries do.
Additionally, what attracts more foreigners to move into the Bahamas is the ease of getting a residency permit.
Unlike that of other tax-free countries, the process is relatively simpler in the Bahamas. The government imposes minimum conditions so that foreigners can get permanent resident status and receive tax benefits.
Usually, the head-of-household needs to pay around $1,000, and each dependent pays $25 for the annual residency permit. If you have an immovable property costing no less than $250,000, you’d be granted a permanent residence permit.
The country has a wide range of free-trade zone incentives in the business sector. For example, your business is exempted from VAT and customs duties if the transactions are found eligible.
So, if you plan to put up a business in the Bahamas, there are many available types of business to choose from. Some examples are partnerships, foundations, limited liability companies, or private corporations.
Should You Move to Any of these Countries With No Taxes?
Many people have considered renouncing citizenship to stop paying taxes in the United States. However, moving to any of these countries is easier said than done. But how do tax-free countries work?
If you’re a U.S. citizen, you are still obligated to file and pay U.S. income taxes to the Internal Revenue Service (IRS), regardless of where you choose to reside, unless you renounce your citizenship.
It may be tempting, but renouncing citizenship isn’t an easy job because of the following reasons.
- Not all tax-free countries provide easy access to a permanent residence permit. Usually, it’d be a length and expensive process. Some of these countries keep the entry fees very high to attract top investment.
- The U.S. tax authorities face an increasing number of billionaires who acquired citizenship in tax-friendly countries. Thus, they make it more expensive and difficult to renounce U.S. citizenship as a response.
However, if you’ve already decided on moving into any of these countries with no taxes, you can get into living tax-free with careful planning and some flexibility.
Now you learn that there exist several countries in the world with no taxes. However, this shouldn’t be the sole reason for renouncing your current citizenship. After all, there are many disadvantages of tax-free countries as well.
Whether you think of moving permanently or putting up a business in any of these countries, there is an enormous benefit of careful planning by weighing the advantages and disadvantages of your decision.
Finding the best country to move into depends on your nationality, finances, and circumstances. If you need more information about what’s ideal for you, contact us today, and we’re more than happy to help you end up in the life you’ve ever dreamed of.
Related: Expat Taxes: Tax Considerations When Retiring Abroad