Setting up a business is extremely thrilling but can be equally nerve-racking and stressful. Employment and corporate costs are not the only things to worry about. Different countries around the world subject new businesses according to their own tax systems. That’s why many entrepreneurs should carefully consider when deciding the best country to set up their business ventures.
To simplify your job, we’ve compiled a list of the best tax-free countries, including 10 destinations that we deem the most favorable for business purposes.
Key Takeaways
- Tax-free or low-tax countries offer a favorable environment for setting up a business, attracting entrepreneurs with the promise of reduced tax liabilities and increased profitability.
- Among the best tax-free countries in the world are the Caribbean islands of Antigua and Barbuda, St Kitts and Nevis, the UAE, and Monaco. These countries have no income tax, and the rest of the taxes are reduced to the minimum.
- Several factors that contribute to being acknowledged as tax havens are revenue generated from natural resources and highly developed industrial sectors that bring profit, such as tourism.
- Countries with low tax rates are Malta, Andorra, Spain, and Singapore. They offer favorable conditions to start a business.
How Do Tax-Free Countries Work?
Most countries make their money through taxation, charging individuals and corporations on their incomes to fund certain government projects and plans. However, there are several tax-free countries that are able to operate without imposing tax burdens on their citizens and residents. Here are some factors and mechanisms that contribute to their ability to maintain tax-free status.
Revenue from state-owned enterprises
Countries rich in natural resources like oil and gas, such as the UAE, Kuwait, and Katar, generate significant revenue by exporting these resources to state-owned companies.
Taxes from consumption and services
Instead of income taxes, tax-free countries rely on consumption taxes like VAT (value-added tax) and taxes on specific goods and services.
Foreign investment
Some countries intentionally offer zero income tax to attract foreign investments and high-net-worth individuals. Moreover, many countries have launched residency through investment programs to contribute to the country's economy.
Tourism
Tourism is considered a huge source of income for many countries, provided it’s safe and appealing to visit. The global travel and tourism industry is predicted to reach a massive $16.20 billion by the end of 2031. Not only do tourists spend money on local goods and services, but they also pay fees for entry visas.
Non-Tax Revenue Sources
Among these sources are fees collected from work permits, interests from debts and loans, fees for transportation, local services, and other infrastructure supplies.
Tax-Free Countries in The World
Some countries with no income tax are havens for many individuals to move to. These tax havens attract high-net-worth individuals, entrepreneurs, and expatriates seeking to maximize their income and savings. Here are a few examples of tax-free countries.
The Caribbean
Caribbean countries are often considered havens for business due to favorable tax environments, financial privacy laws, and low tax implications.
Antigua and Barbuda
In Antigua and Barbuda, the tax implications vary, depending on an individual’s or entity’s tax residency status. The country does not impose personal income tax on its tax residents. There is no tax on dividends, royalties, or interests.
However, non-residents are subject to a 25% withholding tax on dividends, royalties, or interests. This tax-friendly environment contributes to the attractiveness of Antigua and Barbuda as a destination for individuals and businesses seeking tax optimization.
Many financially well-off individuals take advantage of citizenship through investment program offered by the country.
You can also check one case of our clients who have applied for Antigua citizenship by investment program by Mirabello Consultancy guidance here.
St Kitts and Nevis
St Kitts and Nevis has one of the strongest passports among Caribbean countries, ensuring visa-free access to 156 countries. The country has no personal income tax, inheritance tax, or capital gains tax for both residents and non-residents. Nevertheless, companies are taxed based on their tax residency status.
Both tax and non-tax resident companies are taxed at a corporate tax rate of 33% on their income. There is also a 15% withholding tax on dividends, interest, or royalties paid to non-tax residents. It’s worth mentioning that by 'non-tax resident,' we mean a citizen who does not live in St. Kitts and Nevis.
St Kitts and Navis might be a good choice for those seeking a tax-friendly environment to set up a business. Citizenship through an investment program can expedite the process of obtaining residency.
The Cayman Islands
The Cayman Islands is a popular destination among investors and businessmen. It offers a highly tax-efficient environment thanks to its lack of corporate tax, net-worth tax, inheritance tax, personal income, and capital gains tax.
The Bahamas does not levy a corporate income tax. Instead, businesses must obtain a business license and pay a business license tax based on the turnover.
Middle East
United Arab Emirates
Since the discovery of oil in the UAE 60 years ago, the country has undergone a significant transformation from a small desert region to a modern state with a high standard of living. The country’s free trade zones, which offer 100% foreign ownership and zero taxes, are attracting foreign investors.
As a global tourism and trade hub, the UAE has promoted itself as one of the best countries for foreign investments and business. In 2019, the country launched the Golden Visa program to attract high-net-worth individuals.
Bahrain
As we are talking about the Middle East, oil and gas are inseparable from the region’s economic landscape. Bahrain is not an exception. Due to its tax-efficient environment, it’s an appealing destination for businessmen. It does not impose any personal tax on its residents, whether citizens or expats. Also, it generally does not levy corporate tax, except for a 46% tax on companies engaged in the exploration and refining of hydrocarbons, namely gas and oil.
Approximately 6 mln foreign workers play an important role in Saudi Arabia's economy. The government puts huge efforts into diversifying the economic sectors, from petroleum production to healthcare, education, and tourism. That’s the reason it has a very favorable environment for foreign investments. There is no personal income tax imposed on the residents. Corporate tax rates are also beneficial, at 20%, for most businesses.
Europe
Monaco
Monaco can be a good pick for those seeking to optimize their tax situation in Europe. The country does not levy a personal tax income on its residents, making it a highly attractive destination for wealthy individuals.
However, it’s worth noting that the cost of living in Monaco is notably high, and this is a key factor one should consider before preparing for the move.
Several European countries have low tax implications, which will be discussed in the next section.
Countries With The Lowest Taxes
Some countries offer the lowest tax rates globally, making them attractive destinations for investors and businessmen looking to optimize tax liabilities. Here are some of those countries.
Andorra
The personal income and corporate tax rate in Andorra is 10%. The country has a general indirect or value-added tax rate of 4.5%, significantly lower than the European average of around 21%. There are also reduced rates for specific goods and services, such as 0% for health and education products.
Malta
Malta offers a favorable tax environment for investors and businessmen, with a corporate tax rate of 35% on worldwide income and personal gains. “That’s not low,” you might say. So here we are to claim that this rate can be significantly reduced through Malta’s full imputation and refundable tax credit systems, which allow for refunds of up to 6/7 of the tax paid.
Thus, the effective corporate tax rate can be as low as 5%. To attract foreign investors, Malta has launched a residency through an investment program, which gives a bunch of opportunities in the country.
Spain
After successfully recovering from a prolonged recession, Spain is now considered a good destination for start-up businesses. The general corporate tax rate is 25%, while for start-ups, the rate is reduced to 15% in the first tax period. Entrepreneurs are also taxed at 15%. With the Spanish Golden Visa gaining popularity, favorable conditions are being created for both individuals and foreign companies.
Singapore
Singapore’s corporate tax system is structured to be business-friendly and competitive, with low corporate tax and various tax initiatives to attract foreign companies, support local enterprises, and maximize tax efficiency. The corporate tax rate is 17%. However, the government has come up with several programs to reduce the tax burden. For example, 75% is exempted from the first S$100,000 of taxable income and 50% on the next S$100,000.
Challenges and Considerations
Setting up a business in a low-tax or tax-free country might be an appealing choice for many companies and entrepreneurs looking to minimize their tax liabilities. However, there are challenges and implications involved in such a decision that need careful consideration.
- Double taxation - The Common Reporting Standard and the Foreign Account Tax Compliance Act are standard agreements between countries to prevent tax evasion. The process involves automatically exchanging information about financial accounts. This means that a country where the business is registered shares information with a country where the owner is a tax resident. This can potentially lead to double tax obligations. So it’s essential to consider this.
- Currency and exchange rate risks -Exchange rate risks that can impact the value of income, expenses, and assets are inevitable if a company is operating in a foreign country. So, implementing risk management strategies to mitigate currency fluctuations is essential for financial stability.
- Trade-offs of a tax-free country - If a foreign company is not only registered but is also operating in the host country, several things must be taken into consideration, including high rent and housing costs, high healthcare and transportation costs, and other social costs. Being tax-free or having low tax rates doesn’t necessarily guarantee that the country is a perfect place for living and setting up a business. Even minor costs should be calculated.
Conclusion
Tax-free countries offer ample opportunities for entrepreneurs seeking to minimize tax liabilities and maximize profits. Among these countries are the Caribbean islands of Antigua and Barbuda, St Kitts and Nevis, The UAE, Bahrain, and Saudi Arabia with zero personal tax income and favorable corporate tax rates.
Other countries that are considered tax havens for businesses are Malta, Andorra, Spain, and Singapore. Some of these countries offer citizenship or residency through investment programs to maximize and enhance the benefits and opportunities provided.
If you are interested in the investment programs, contact one of the experts at Mirabello Consultancy, who will guide you through the whole process, highlighting the main factors and challenges worth considering.
FAQ
- Is Dubai really tax-free?
Dubai is not entirely tax-free. While there is no personal income tax, corporate tax is enforced with 9% on taxable income exceeding AED 375,000. The corporate tax rate was introduced in June 2023 as part of the new tax regulations in Dubai.
- What country has the lowest business tax?
Among the countries with the lowest business tax are Andorra, the UAE, the Cayman Islands, Bahrain, the Bahamas, and more.
- What is the best European country to start a business?
Spain is attractive for e-commerce. Barcelona and Madrid are considered popular start-up hubs. The United Kingdom offers a business-friendly environment and access to top talent. The country is famous for zero start-up costs for new businesses.
