Most countries levy taxes on individuals and business companies. The tax money allows financing various social programs and improving the overall living standards in the country. The personal income tax as well as the VAT are two primary sources of income in many states. At the same time, there are countries that do not tax personal income at all and there are countries that do not have a VAT. What are these countries and where do they get the money to finance their social projects? We answer these questions in the text below.
Monaco
The Principality of Monaco is a tax haven. Its citizens do not pay any taxes while Monaco is one of the richest countries in the world. Locals have been exempted from the personal income tax since 1869. Foreign nationals are taxed at a progressive rate of 0% to 45%.
No profit, luxury, or capital gains tax is payable in Monaco. Local and foreign companies do not have to pay the corporate tax on the condition that they derive more than 75% of their profit from business operations within Monaco. If this is not the case, the corporate tax rate is 33.33%. Beginning 2014, the VAT has been 20% in the principality.
Bulgaria
Bulgaria attracts foreign investors and entrepreneurs by a simple and transparent tax system and lack of pressure on the part of the state. There you will find the lowest income tax rate in the European Union: 10%. Capital gains are included in the taxable base when the profit tax is levied.
Both fiscal residents and non-residents of Bulgaria pay the income tax at 10%. We must note at this point that non-residents are taxed only on the income made in Bulgaria while residents of the country are taxed on their global income. The transport tax depends on the age of the car. The older the car, the higher the tax rate.
The VAT has been stable at 20% for seven years in Bulgaria. If a company has a small turnover (50,000 levs, approximately US$ 26,800 per year), no VAT is charged. A reduced rate of 9% is applied to hotel businesses and private individuals renting their property out. Exported goods made in Bulgaria are not subject to VAT.
Singapore
The country is famous for its beneficial tax regime. No taxes are payable on incomes derived abroad. The taxes on income made within Singapore depend on who makes the income. Non-residents pay a 15% personal income tax and it is flat while residents are taxed at 2% to 22% depending on the amount of income that they make per year. The corporate tax rate is also progressive: from 8.5% to 17%.
The so-called sales tax, which is a substitute for VAT, is 7% in Singapore. The buyer has to carry the tax burden in this case. The company has to register with the tax authorities as a sales tax collector if it wants to have the powers to charge the tax. Seeking the expertise of business service companies that specialize in the incorporation of company in Singapore will help fast-track the registration process.
UAE
The United Arab Emirates stands out among the low-tax countries. It is known as a tax paradise. Not relying on taxes when building the national budget is an important part of the local economic policy. Notwithstanding this fact, the economy of the UAE has been growing stronger year after year.
It may sound odd to some people, but when a worker is paid a salary in the UAE, he or she is paid the full sum: nothing goes to taxes! The same holds for an entrepreneur making his/ her own money.
The VAT was not charged in the UAE until 2018. Today, the standard rate is 5%. Companies working in healthcare, education, and construction as well manufacturers of certain products do not have to pay the VAT in the Emirates.
Bahamas
Several tax havens can be found in the Caribbean and the Bahamas is one of them. The jurisdiction has one of the most favorable tax systems in the world which encourages people to get Caribbean citizenship by investment. The following incomes are not taxed in the Bahamas:
- Personal income;
- Capital gains;
- Wealth;
- Sales.
In 2019, the island authorities decided to experiment and allow paying taxes in cryptocurrencies. The state treasury is replenished by the high rate of customs duties – 25% on all goods brought to the territory. Besides, license fees, property taxes, and company registration fees are charged in the Bahamas.
An International Business Company registered in the Bahamas is tax-exempt for 20 years if it conducts business operations abroad. More than 250 banks and trusts from 25 countries are registered in the jurisdiction.
Cayman Islands
International companies are totally tax-exempt in the jurisdiction for the first 20 years of their existence if they do business abroad.
The following taxes are absent in the Caymans:
- Income tax;
- Profit tax;
- Sales tax;
- Capital gains tax;
- Inheritance tax;
- Property tax.
The state budget is replenished by state duties, customs duties, and company registration fees payable every year. The Cayman Islands is an offshore banking center: around 600 banks are in operation there.
Zero-tax countries
It may sound surprising but there are countries that do not tax personal incomes at all. The countries include the following ones:
- United Arab Emirates;
- Sultanate of Oman;
- Qatar;
- Kuwait;
- Cayman Islands;
- Principality of Monaco;
- Bahrain;
- Bermuda;
- Bahamas;
- Andorra.
Qatar is the wealthiest state in the world as far as its GDP per capita is concerned (around 88 thousand US dollars). Local people are ignorant about poverty and unemployment. Healthcare services and education are free of charge in Qatar. The cost of living is very high in the country. The only cheap product that you can find there is gasoline.
Rich oil deposits allow the Qatar authorities to charge zero income tax and zero capital gains tax. The social security contributions that workers in the country pay are 6.5% of their salaries.
Zero-tax countries: Where do they find the money?
Countries that charge no taxes are among the most prosperous countries in the world. The question is: How do they manage to keep the living standards so high if they don’t tax their citizens? The answer is specific for every country.
For instance, oil and oil products account for 95% of the total revenues in Kuwait. The UAE also exports oil but the country has other exported items too such as precious stones, gold, and jewelry. Qatar has huge deposits of natural gas.
The Bahamas obtain revenues from the offshore industry, tourism, and high import duties. The property tax is 1% there and the social security tax is 5.9%. Self-employed individuals contribute 8.8% of their incomes to the national budget.
Immigrants bring most of the money to Monaco: 4 out of 5 residents in the country are foreigners. To obtain a residence permit, you have to put at least 500,000 euros in a bank account or buy real property that costs at least as much. The second opportunity is actually unavailable in practice because the property prices start at 1 million euros in Monaco. Casinos also bring a lot of profit to Monegasques.
As you can see, the popular saying that ‘you can’t avoid two things: death and taxes’ is not exactly correct. If a certain country is rich, it can avoid taxing its citizens.