Countries with No Income Tax
You’re definitely not the only one who is tired of having a substantial chunk of your hard-earned income vanish due to exorbitant taxes. It’s no secret that many developed Western nations such as the United States, Canada, Australia as well as many European countries, levy massive income taxes on their high-earning citizens.
Table of Contents:
- Is It Really Possible To Pay No Tax?
- What Is The Difference Between Low Tax And No Tax Countries?
- Low Tax Countries
- No Tax Countries
- How Do Tax-Free Countries Work?
- 9 Countries With No Income Tax
- Moving To A Country With Low Tax Alternative
- Personal Tax Rates By Country
There is a growing trend in recent years of people looking abroad for tax advantages thankfully in large part due to the spread of information and the reduction of barriers. There are a number of options that exist depending upon the circumstances and the type of assets involved including everything from moving to tax-free countries to redomicile or restructure business operations and investment portfolios.
Through proper planning and asset structuring, it is usually possible to reduce and in some cases completely eliminate your tax burden. One of the best ways, though maybe not the easiest is to become a tax resident of a country that has no income taxes.
This article will explain whether it is possible to relocate to a tax-free country, the issues that may come up along the way, and our list of some of the best countries in the world that have no income tax.
Is it Really Possible to Pay No Income Tax?
For those who have grown accustomed to high taxes, it may seem like a distant reality to imagine countries where one can live entirely tax-free.
You may wonder how these countries generate enough revenue to survive without levying tax on their citizens?
Many low/no-tax countries generate governmental revenue via other sources. This can differ depending on the country. For example, many of the Gulf countries don’t charge income tax because they generate huge amounts of revenue from their public oil industries. Then there are beautiful island nations like the Bahamas and Belize where tourism and offshore financial services account for much of their tax revenue and GDP.
A large portion of revenue comes from no-tax and low-tax countries come from offshore financial sectors. Meaning they offer attractive tax breaks for businesses and individuals if they incorporate and set up their business. Places like St. Kitts & Nevis as well as Vanuatu and Cayman Islands are a few such places. These countries are able to attract huge amounts of foreign investment because they have tax-friendly legislation without needing to charge direct income taxes.
So, it is clear that there are indeed countries with no taxes, but the next question is whether it is possible to actually become a resident of these countries so as to eliminate the need to pay taxes. The short answer is, yes!
It is definitely possible. However, it is not necessarily easy, and may take substantial time, determination, and in many cases, sizeable wealth. We will discuss these issues in more detail later on.
What is the Difference Between Low Tax and No Tax Countries?
The difference between tax-free and low-tax countries is that tax-free countries have no income tax whatsoever which often includes no taxation of other forms such as capital gains, withholding tax, corporate tax. There are currently 23 countries in the world that fit this description.
Whereas countries with low taxes have a marginal tax rate that usually is under 10%. Low-tax countries may be a good alternative as they often have a better reputation for banking and incorporation.
Low Tax Countries
There are also countries with extremely low income-tax rates. This includes places like:
- Dominican Republic
- Czech Republic
Countries with territorial tax systems tax residents on income generated only inside the country while foreign-earned income is tax-exempt.
For example, if you are a digital nomad, run an online business or are a global investor with income that is made globally, becoming a resident of a country with a territorial tax system would ultimately achieve the same goal as living in a tax-free country.
In many cases countries with low-tax and/or territorial tax systems make it easier for foreigners to acquire residency than tax-free countries. This is largely to do with the nature of the economy of tax-free countries that have specific financial regulations in place that favour certain industries.
It is beyond the scope of this article as we will focus on tax-free countries, but it is definitely worth considering low-tax countries as a good alternative option.
No Tax Countries
Now just because you decide to move to a country with no income taxes doesn't mean that you are tax-free. In order to completely eliminate your income taxes obligations, you need to establish tax residency which means having your domicile moved. This is done by becoming a permanent resident, usually done through applying for the appropriate visas and living in the country for more than 183 days a year.
However, if you are American, you don't get away that easily, you are still obligated to pay your taxes on all worldwide income no matter where you live. Though you are able to deduct upwards of 120,000 of income through Foreign Earned Income Exclusion. Meaning that you likely will not have to pay any income tax on any money that is made overseas up to 120,000. Anything over that and you are liable.
The only way to become completely tax-free if you are an American is to renounce your U.S citizenship. Individuals holding other passports around the world, thankfully do not fall under the same brutal tax regime and are free from needing to pay any income tax if they change tax residency.
There are over 20 countries that do not have income tax; however, most of these are either difficult to establish residency in, or are countries that few people would want to live in to begin with. We have therefore narrowed down our list to the top 6 countries with no income tax, according to factors such as the quality of life, cost of living, and the ease of acquiring residency.
How do tax-free countries work?
You might be wondering how do countries with no taxes actually make money? This is not a straightforward answer because it depends on which country you are speaking about, as each has its own comparative advantage and unique ways of doing things. However, we can say that governments that are tax-free make money in other ways.
By reducing taxes in a country they attract foreign investors who come to invest, do business, and establish companies. With that comes license fees, company fees and registration fees not to mention the added benefit of having thousands of wealthy expatriates.
All in all, it is a very good model that many western countries frown upon. Not surprising as they are the ones that are losing revenue as many of their citizens move offshore to greener pastures.
9 Countries with No Income Tax
1. the United Arab Emirates
The UAE is one of a few Gulf states with no income tax (others include Kuwait, Oman, and Qatar), thanks mostly to the income generated from their oil exports. In addition, the UAE does not levy any withholding tax or corporate income tax (for most types of business), and there are no foreign exchange controls.
What really sets the UAE apart from its neighbors is that it is one of the easiest Gulf states to live and work in. Known to be up there with the freest economies in the world, the UAE is welcoming to foreign investment and expats who wish to relocate and take advantage of their many high-paying employment opportunities.
Recently, the UAE has started issuing 10-year residence visas to foreigners which are quite easy to acquire. It is a highly liveable and functional place to live, and so one of the better tax-free countries to set your sights on.
2. St. Kitts and Nevis
The full list of countries with no income tax is, quite unsurprisingly, dominated by the Caribbean tax havens. And probably the number one choice which allows you to easily establish residency and/or citizenship is the island nation of St Kitts & Nevis.
Like the other countries on this list, St. Kitts & Nevis has no income tax at all, nor just about any taxes of any kind for that matter. They receive most of their revenue from tourism and, you guessed it, their offshore financial industry.
It is easy to establish permanent residence in St. Kitts & Nevis, and they also offer the oldest and most well-known citizenship by investment program around. Since the devastating hurricane damage of 2017, they now offer citizenship at a discounted $150,000 donation to their hurricane relief fund. The entire process of acquiring citizenship can take less than a year to complete.
This could be a relatively small price to pay for wealthy individuals looking to acquire second citizenship somewhere which will provide major tax relief, a strong second passport, and not to mention a new home in one of the more beautiful and charming Caribbean islands.
3. the Cayman Islands
The Cayman Islands is another Caribbean island nation with no tax. Similar to St Kitts & Nevis, they make plenty of revenue through their tourism and offshore finance sectors.
The Cayman Islands is one of the more “upper market” Caribbean nations. The living costs are on the higher end, and you will need to invest a substantial amount in order to maintain long-term residency. However, this might be a worthwhile option for wealthier investors who would prefer to stay somewhere which offers a first-class lifestyle in a developed nation.
The Cayman Islands are not as well known for offering citizenship by investment, but they do generally allow permanent residence for those making in excess of $100,000 per year and investing sizeable amounts in real estate or local businesses. It is therefore a viable option to consider.
Nestled in the Caribbean Sea, the tiny island of Anguilla is a popular tourist destination known for its pristine beaches and turquoise waters. What many visitors don't realize is that Anguilla is also one of several countries in the world with no income tax.
This makes it an attractive destination for both individuals and businesses looking to minimize their tax liability. In addition to being tax-free, Anguilla also has a favorable business climate, the government is stable and business friendly, and the island has a well-developed infrastructure.
While there are some restrictions on foreign ownership of local businesses, but overall Anguilla provides an appealing option for those looking to establish a business in a Caribbean setting.
5. the Bahamas
The Bahamas is our third tax-free Caribbean paradise on this list. It is one of the most popular tourist destinations in the world, so as you can imagine it is also a pretty great place to live!
It is extremely easy to obtain an annually renewable temporary residence permit in the Bahamas for $1,000. You will need to invest at least $250,000 in real estate in order to establish permanent residence though, which allows you to become a tax resident and therefore eliminate your income taxes altogether in the long run.
The Bahamas also doesn’t have a citizenship by investment program to speak of as of yet. The substantial amount of money you will need to maintain permanent residency could be worth it for those wanting to escape to one of the world’s favourite beach paradises and tax havens.
The Pacific island of Vanuatu is one of the easiest, fastest, and cheapest tax-free alternatives to the Caribbean nations for acquiring citizenship by investment. For the total cost of approximately $200,000, you can be the proud owner of a Vanuatuan passport within a jaw-dropping two months!
The only potential downside to Vanuatu is that it quite isolated and “off-the-grid” so to speak. Travelling there frequently could be a bit of hassle. However, it is certainly a worthwhile option for those needing to acquire a reasonably affordable second citizenship quickly so as to eliminate their tax bill.
Panama is a country located in Central America with a coastline on the Pacific Ocean and another on the Caribbean Sea. The country is famous for its Canal, which connects the two oceans. Panama has a diverse economy with a large service sector, including tourism and finance, and a smaller agricultural and industrial sector. The country does not have a personal income tax, though there are other taxes in Panama, such as property taxes.
This makes Panama an attractive destination for those looking to relocate for personal or business reasons. The lack of income tax means that more of your earnings can go towards savings or investments. Additionally, it can make starting a business in Panama more viable as there are less overhead costs. There are a number of benefits to living in Panama, including the year-round warm climate, the beautiful beaches, and a territorial taxation system.
Their residency program is one of the easiest in the world, and only requires a US$5,000 deposit through a friendly nations visa program.
The only European nation on this list, Monaco has become world-renowned as one of the best tax-free states for the mega-wealthy to move to.
Monaco is a beautiful and wealthy city-state located on the Mediterranean Coast on the French Riviera. It is also one of a handful of countries which charges its residents and citizens zero tax whatsoever.
Acquiring residence and/or citizenship in Monaco is relatively simple, but extremely costly. You will need at least a few million dollars in order to prove sufficient wealth to acquire permanent residence.
If Monaco sounds like the ideal place for you, you will be joining an elite group of wealthy expats living a tax-free life of luxury.
Bermuda is a small island that lies in the middle of the Atlantic Ocean most famous for the mysterious Bermuda triangle and its zero income tax haven status. While that doesn't mean there are no taxes at all, as there are land taxes, payroll taxes, customs duties, and license fees.
There are a number of friendly visa options that allow you to stay as a tourist or business person for anywhere from 3 months to 5 years. While that part is easy getting a permanent residency is a bit more difficult, but with a little tenacity you can see it through.
Moving to a Country with Low Tax Alternative
The idea of moving to a country with no income tax is naturally appealing. However, for many it might not be practically feasible to relocate to one of the countries with no income tax. Most of these countries make it difficult to establish permanent tax residence, and even more challenging to become a full citizen.
This is why it is certainly worth also considering low-tax countries and countries with friendly territorial tax systems in your search for the right tax-free second residence. Many of these territorial tax countries make it much easier for foreigners to acquire residence, and it will also increase your range of choices.
Some of the best options in this category include Hong Kong, Singapore, Malaysia, and Panama. Malaysia and Panama both have particularly easy residence requirements. Panama has the added advantage of minimal physical presence requirements, meaning you don’t actually have to live in Panama for more than half the year to maintain your residency (as is the case with most other countries).
If you are a digital nomad or international entrepreneur then becoming a tax resident of a country with a territorial tax system can effectively offer the same benefits as a country without any income taxes.
There are a number of countries in the world today which do not have any income taxes whatsoever. However, not all of them are desirable or feasible destinations to become a resident of for tax purposes.
If you are a US citizen, then merely obtaining alternative residence probably won’t be enough. You will still need to file and pay taxes to the IRS unless you renounce your US citizenship or qualify for the foreign-earned income exclusion clause. In that case, you would be better off looking at one of the countries which offer fast-track citizenship by investment like St. Kitts & Nevis or Vanuatu.
Finding the right country depends upon you and your circumstances, your nationality and your finances. To find out what is the ideal solution for you, get in touch to find out.