Some of the countries with no income tax include the British Virgin Islands, the Cayman Islands, Bermuda, Monaco, and the United Arab Emirates. Many of these countries have thriving economies thanks to tourism and abundant natural resources. However, without the money provided by income taxes, these countries may make up that income through higher property or energy taxes.
Digital nomads, entrepreneurs, and business tycoons have one thing in common: virtually none like to pay hefty or complex tax bills. Thankfully, more than a few countries worldwide have zero income tax. As the world becomes more digital, some countries are adjusting their tax policies to welcome more business outside their borders.
Throwing a dart on a world map may be a fun way to travel, but it may not be the best way to choose a tax-friendly country to live in. In this article, we’ll review several countries that do not impose income tax and give insight into what life in these countries entails.
Avoiding income taxes
If you’re a U.S. citizen, avoiding income taxes isn’t as simple as moving to another country. The U.S. federal government still requires citizens and tax residents to pay taxes on foreign income. As such, you’d have to renounce your United States citizenship for the opportunity of total income-tax relief. After you do so, you can reap the benefits of living in an income-tax-free country.
That being said, renouncing U.S. citizenship may be just one of several obstacles to avoiding income taxes. There are very few no-income-tax countries that treat ex-pats well and easily allow them to live long-term. For those that do, you may face employment and investment requirements when establishing residency.
If you find moving to a no-income-tax country difficult or unfavorable, consider a low-income-tax country instead. This significantly widens your search potential and gives you a chance to find a place where you both love to live and can pay minimal income taxes.
If you’re looking to move simply to save money on your tax bill, consider enlisting the help of a tax professional or the tax software below. You may qualify for a bigger return or tax credits that you didn’t even consider.
Some countries offer tax exemptions on foreign income. This means you can be a tax resident in one country and earn money in another country, all while avoiding income taxes.
If this is your situation, consider potential resident countries with tax exemptions on foreign income. This is especially useful for residents of low-income countries earning money in higher-income countries.
Countries that don’t charge income tax
A Tax Foundation study analyzed the 41 countries with the highest marginal tax rates. It concluded that, in 37 of the 41 countries, personal income tax accounted for the greatest portion of taxes paid by individuals. Finding a country that doesn’t charge this income tax could save you significant money.
Here are five countries with no income tax. We’ve ordered them from “best to worst” measured on their friendliness to business, safety, and how easy it is to move there.
The fine print
1. Cayman Islands
The Cayman Islands, a part of the British Territories, are known as financial havens for foreigners looking to minimize their tax burden. One factor that has allowed the country to avoid personal income taxes is that about 75% of the country’s GDP used to come from tourism. This number has shrunk significantly since the onset of the global pandemic.
In 2021, the restaurant and hotel industries suffered the largest losses, shrinking by almost 14%. This was a direct result of the decreased tourism activities and an over 85% decline in overnight visitors. Despite taking a hit, the country is working to build its tourism industry again.
Applying for citizenship in the Cayman Islands requires at least eight years of residency but not more than nine before officially applying. Relative to other tax-free countries, the Cayman Islands still offer an excellent standard of living. That said, you would be wise to do your homework on the cost of living in the Cayman Islands compared to that in your home country before jumping ship.
Among the Caribbean Islands, Bermuda is the oldest British overseas territory with no personal income tax. Bermuda brings in around 41% of its GDP from its financial services and international business dealings. The country also has a tremendously strong economy, stunning natural beauty, and high living standards.
To obtain citizenship, you have several options. You may marry a local (for a fee) or apply for a Resident’s Certificate, which may require prior residency. Due to the global financial focus on the island, this country has yet to see a boom in the digital nomad space. Tourism declined sharply during the global pandemic, but the country is beginning to rebound.
3. United Arab Emirates
Despite most of its wealth stemming from oil and natural gas, the United Arab Emirates has broadened its economy. The energy sector currently only makes up about 30% of its GDP. Though it is still an oil-rich country, the UAE has increased resources dedicated to job creation and domestic infrastructure improvements in the last few years.
The UAE has even established free trade zones, which offer 100% foreign ownership and no taxes levied. These terms have drawn many foreign investors and ex-pats looking to migrate to more tax-friendly environments. Unfortunately for those who indulge, since 2017 the UAE does impose 50% excise taxes on soda and 100% on energy drinks and tobacco products.
Living and working in the UAE requires a resident or business sponsorship through the Kafala system sponsor program. Visas are temporary, and you must keep your sponsored job to remain in the country. Becoming a permanent resident can be challenging without a sponsor.
4. British Virgin Islands
Another fun zero-tax country to explore is the British Virgin Islands, home to one of the most stable and prosperous economies in the Caribbean. In the mid-1980s, this country began offering offshore registration for foreign companies looking to incorporate outside their home countries. Offshore registrations generated, and continue to generate, substantial revenue for the islands. Despite the influx of offshore business, BVI still receives around 45% of its GDP from tourism and continues using the U.S. dollar as its currency.
To obtain permanent residence, you must live in the BVI for at least 20 years and then submit a residence form to the local immigration department. Ex-pats from across the globe have settled here, so you’ll meet a wide variety of people when you visit. Thankfully, for those traveling for business, there are minimal hoops to jump through to travel in and out.
Formula One racing and super-yachts are as much a staple in Monaco as is tax haven status. Casinos, beautiful beaches, and tourism keep Monaco running year-round, allowing the country to operate without personal income taxes. It has one of the highest qualities of life in Europe.
Foreign banks have become more interested in Monaco since it joined an international list of countries making efforts to combat offshore tax evasion. However, being a country with zero personal income tax can come with other expenses.
As of January 2022, a 25% corporate income tax applies if companies generate more than a quarter of profits outside the country. Consumers also face a nearly 20% VAT for any purchases.
Obtaining a permanent residence permit to live amongst the rich and anonymous can be pricey. You must own or rent a residence and have an account in a Monegasque bank (a large private bank specific to Monaco). But if fancy cars, life on the water, and extravagance are your thing, Monaco may be your new home.
How do countries make money without taxes?
Aside from income taxes, countries can earn money from sales taxes, corporate taxes, property taxes, selling natural resources, agricultural exports, and tourism.
Is Dubai still tax-free?
Dubai doesn’t have personal income taxes, but it does have other taxes, such as value-added taxes (VAT) and some corporate taxes. Tourism, financial services, and one of the freest gold markets in the world have kept the economy strong and attractive to international business.
Is it better to live in a state with no income tax?
No income taxes sound like a great idea, but you should read the fine print. In place of personal or corporate income taxes, some countries will have higher property or sales taxes to make up the difference.
Why do countries have no income tax?
Having no income tax and being known for your “tax-free status” is an effective way to stimulate growth in many countries. Nations with strong economies based on trade, tourism, or financial services will advertise their policy to attract more businesses and individuals to relocate there.
No income tax can also simplify the tax codes. It makes for fewer brackets and forms. In turn, it is easier for businesses and individuals to comply with the regulation. Some countries have vast natural resources, like oil or booming trade industries, and thereby don’t need to rely on income taxes for revenue.
Which country has the highest income tax?
Ivory Coast has the highest income tax at 60%. It is followed closely by Finland, 56.9%, and Japan, 55.9%.
- The Cayman Islands, Bermuda, United Arab Emirates, British Virgin Islands, and Monaco are some of the countries that don’t charge income tax.
- Even after moving to another country, American citizens still have to pay income taxes on any income they make outside of the U.S. The only way to avoid this charge is by renouncing your American citizenship.
- While it’s nice to not pay income taxes, countries with no income tax may charge more in other taxes to make up the difference. This includes higher property taxes or VAT.
- Make sure to check how to obtain citizenship and compare cost-of-living prices before moving to a new country.
View Article Sources
- Bermuda — The World Factbook | CIA.gov
- United Arab Emirates — The World Factbook | CIA.gov
- British Virgin Islands — The World Factbook | CIA.gov
- Monaco — The World Factbook | CIA.gov
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