Countries Without Income Taxes

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Countries Without Income Taxes

Tax season—which, if you pay estimated taxes, might come four times a year—can inspire ideas of moving elsewhere, anyplace that allows you to avoid paying income taxes.

Taxes are not unimportant. They allow governments to finance critical public works and services, as well as create and maintain infrastructure on which millions depend. There would be no safety-net services, bridge repairs, or public transit if taxes were not collected.

In 2018, over 45% of American taxpayers believed their taxes were too high. How tall are they? In 2019, the highest effective income tax rate in the United States was more than 40%. According to a Tax Foundation analysis of 41 nations, the top marginal tax rate for the highest-earning Americans was 47% when consumption tax, payroll tax, and what the research called “social contributions [Social Security taxes, for example]” were combined. That seems to be a lot, but most nations take considerably more: The United States is ranked 32nd out of 41 nations on the list. Sweden has the highest tax burden (76%), while Bulgaria has the lowest (29%).

Nonetheless, given that income taxes might account for the bulk of taxes owed—as they undoubtedly do in the United States—understandable it’s that individuals would be interested in nations that provide an alternative.

Key Takeaways

  • Income taxes are a major source of government revenue in the United States and most of the rest of the globe.
  • However, some governments do not levy an income tax on its inhabitants or citizens.
  • These governments depend on other sorts of taxes, such as VAT and property tax, to support operations.

How Countries Function Without Income Taxes

Governments levy income taxes on the earnings of people and enterprises operating within their borders. The tax system in the United States is progressive, which means that individuals with higher incomes pay more in taxes than those with lower incomes. For example, in 2017, the average federal individual income tax rate for the top 1% of the population was more than 25%, while the rate for the poorest 50% of the population was less than 5%. This is due to the richest 1% having a total net worth of $32.5 trillion, compared to $1.5 trillion for the bottom 50%.

Income taxes made for the greatest percentage of taxes paid by individuals in 37 of the 40 nations with the highest marginal tax rates.

Given how many countries depend on income taxes to generate money, it’s natural to believe that any government that does not charge an income tax would be underfunded. This does not have to be the case if the country has another major source of money. There are 23 nations in the world that do not have income taxes. Six of them are rich in crude oil deposits.

Furthermore, just because these nations do not levy income taxes does not imply that they provide a tax-free lifestyle. Value-added taxes (VATs), real property taxes, casino taxes, import duties, stamp duties, and licensing fees, for example, provide money for the Bahamas.

Life Without Income Taxes: Is It Possible?

Individuals and businesses in the United States that want to avoid paying income taxes have three alternatives.

  1. The first is to take advantage of the 183-rule and travel from one nation to another on a frequent basis. You can’t become a tax resident if you never stay long enough to be considered a resident. This might quickly become tiresome.
  2. The second alternative is to work in one nation while residing in another that does not tax foreign earnings. This will need renunciation of past citizenship, successful immigration to a new nation where foreign income is tax-free, and employment in a country other than the new country.
  3. Most people would probably choose option three: living in a nation that does not levy income taxes.

Of course, this is not without challenges. Not only is acquiring citizenship difficult in foreign nations, but the United States government isn’t fond on the rich leaving ship. Thousands of millionaires have obtained citizenship in nations with lower tax rates throughout the years. To minimize potential income tax revenue from leaving the nation, US tax authorities have set procedures that make renunciation of US citizenship both difficult and costly.

Currently, regardless of where they reside, all US citizens and green-card holders are legally required to submit US income taxes. To prevent this, green card holders must submit Form I-407 with the US Citizenship and Immigration Services, confirming that they have abandoned their green card holder status. Citizens would have to renounce their US citizenship in accordance with the requirements and conditions outlined in the expatriation tax regulations, which may be a costly procedure.

List of Countries Without Income Taxes

If you or your company is still interested in relocating to a tax-free nation, the first step is to identify where you want to move. Some nations make it more difficult to get citizenship than others, and each location—some of which are rather remote—has its own set of expenses, problems, and hazards.

The 23 nations listed below, in alphabetical order, do not charge income taxes on its inhabitants or residents:

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Bahrain

  • Region: Western Asia
  • GDP: 38,574.07 million (2019)

The archipelago, which was once a British colony, has a varied economy. While oil and natural gas account for 85% of Bahrain’s budget income, the nation also boasts a thriving hotel and retail industry. However, as a consequence of continuous political upheaval, there are occasional clashes between demonstrators and security personnel.

To get a residency permit in Bahrain, one must be prepared to fill out various paperwork and pay a significant fee. Expats will need to spend at least 100,000 BD (or $265,246.70) or buy property worth at least 50,000 BD (or $132,623.35). Applicants must also earn at least 500 BD (or $1,326.23) each month and have a fixed deposit of up to 15,000 BD (or $39,787.01).

Foreign employees who get a work visa from a local company, on the other hand, are eligible for a residence permit. The employer is in charge of arranging the relevant papers. A dependents residence permit is also available for people married to a Bahraini citizen, albeit this must be sought by their employment.

Bermuda

  • Region: North Atlantic Ocean
  • GDP: 5,573.71 million (2013)

Bermuda, the oldest and most populated British Overseas Territory, is one of several that do not charge an income tax. Tourism on the Rock has a lengthy history, extending back to the Victorian period. Despite the fact that tourism employs a far bigger proportion of the population, the insurance and other financial services industry accounts for 85% of Bermuda’s GDP.

Aside from marrying a local (which still costs $3,150), you may get a Permanent Resident’s Certificate, which can take up to 10 years of previous residence and a $50,000 price. There are also various work permits available, including the New Business Work Permit, the Global Entrepreneur Work Permit, and the Global Work Permit, albeit the latter is only valid for a short time.

British Virgin Islands

  • Region: West Indies
  • GDP: $500 million (2017)

The British Virgin Islands is another Caribbean island that relies significantly on tourism, which accounts for around 45% of national GDP. Because low soil quality inhibits crop production, livestock is the most important agricultural activity. Because the British Virgin Islands’ economy is closely linked to the more populous US Virgin Islands, the US dollar has been the official currency since 1959.

A person must remain in the British Virgin Islands for 20 years in order to become a permanent resident. They must next submit a residency form in person to the Immigration Department of the Government of the British Islands.

Brunei

  • Region: Southeast Asia
  • GDP is $13,469.42 billion (2019)

Brunei, like Bahrain, owes most of its economic wealth to its many oil and natural gas resources, which account for 65% of its GDP. This enables the Brunei government to offer free medical care as well as free university education. Brunei’s royal dynasty, the House of Bolkiah, has ruled the country for almost six centuries.

It may be difficult to get a permanent resident visa in Brunei, which usually requires passing severe examinations on local culture, traditions, and language.

Cayman Islands

  • Region: Caribbean Sea
  • GDP: 5,485.42 million (2018)

The Cayman Islands, like Bermuda, is a British Overseas Territory with a notable offshore financial hub. The Cayman Islands, on the other hand, receive around 70% of their GDP from tourism. Despite its isolated location, people are said to have a level of life comparable to that of Switzerland.

Immigrating to the Cayman Islands isn’t tough if you’ve lived there for at least eight years before applying (though no more than nine years prior to applying, outside of specific circumstances).A filing fee of CI$1,000 (about $1,199.40) is required. Once the permit is issued, there is an annual charge of up to CI$12,500 (or $14,992.49) dependent on income.

Kuwait

  • Region: Western Asia
  • 134,761.20 million in GDP (2019)

Despite the fact that the government employs 74% of the workforce, Kuwait is significantly reliant on oil. With petroleum accounting for 92% of its enormous GDP, it’s no wonder that Kuwait can still afford not to tax its inhabitants’ income. According to the CIA, foreigners looking for employment in Kuwait may become victims of forced labor, owing to a sponsorship rule that makes it impossible for employees to quit abusive companies.

Since 2013, the Kuwaiti government has worked to limit the number of expats in order to lessen competition for upper-management positions. Furthermore, foreigners above the age of 50 are constitutionally prohibited from working in Kuwait’s public sector.

Maldives

  • Region: South Asia
  • GDP: 5,729.25 million (2019)

Despite significant expansion in the island nation’s tourist and fishing sectors, Maldives is nonetheless confronting a mountain of rapidly growing debt. Given that 80% of the island is scarcely more than one meter above sea level, there is also increasing worry about the consequences of erosion and rising sea levels caused by global warming. Furthermore, according to the CIA, both foreigners seeking employment in the Maldives and local inhabitants may become victims of forced labor.

Residence in the Maldives is feasible, however a Work Permit is required first. This might be gained via the sponsorship program from a local citizen or corporation. Following that, one will be eligible for a Resident Permit.

Monaco

  • Region: Western Europe
  • GDP: 7,188.24 million (2018)
  Land Value Tax (LVT)

Monaco is a famous tourist destination as well as a significant financial hub, as is the case with a number of other no-income-tax nations. Companies will be taxed a 33% profit tax unless three-fourths of their earnings are earned in Monaco. Local people enjoy a level of life comparable to that of flourishing French urban centers.

Obtaining a residency permit in Monaco is expensive. A dwelling of some kind, such as a house or an apartment, must be owned or rented, and an account in a Monegasque bank must be maintained. An initial deposit of €500,000 to €1,000,000 ($586,328 to $1,159,495) is required to open an account.

Nauru

  • Central Pacific Ocean Region
  • GDP: 118.22 million (2019)

Nauru was previously one of the world’s wealthiest nations owing to vast quantities of a single natural resource: phosphate. While attempts are being made to collect “secondary phosphate” in order to keep the island’s economy viable, the island’s future remains unclear. Fishing permits and the Australian Regional Processing Center for asylum seekers are two more sources of revenue for the government.

Nauru allegedly formerly had an Economic Citizenship Program via which citizenship may be hastened for a price. However, if such information was ever accessible online, it has now been removed.

Norfolk Island

  • Region: Australia
  • GDP: N/A

Norfolk Island was formerly a failed British prison colony that was subsequently colonized by descendants of HMS Bounty mutineers. The tourist sector is the principal engine of economic development in Australia’s overseas territories. Norfolk Island is self-sufficient, producing its own cattle, poultry, and eggs rather than relying significantly on food exports.

Citizens of Australia and New Zealand will have the smoothest experience emigrating to Norfolk Island since they have access to a special procedure. Foreign nationals wishing to live, work, or reside in the country must complete and submit a plethora of papers and documentation.

Oman

  • Region: Western Asia
  • 76,983.09 million in GDP (2019)

Oman is another Middle Eastern nation that relies significantly on oil and gas, which accounts for 68% to 85% of government income. The government is aiming to diversify the economy by boosting tourism, shipping and logistics, mining, manufacturing, and aquaculture. Oman’s longest reigning ruler, Sultan Qaboos bin Said, died in January 2020.

Because of the increasing number of foreign nationals entering the country, Oman’s government is attempting to provide more employment.

Pitcairn

  • Region: Pacific Ocean
  • GDP: N/A

Pitcairn, which was also colonized by HMS Bounty mutineers, is the final outpost of the British Empire in the South Pacific. The economy of this British Overseas Territory is mostly based on fishing, farming, handicrafts, and postal stamps. The island’s population is presently believed to be no more than 50 individuals.

Pitcairn’s immigration procedure is nearly unbelievable simple. All that is required is the completion of a Settlement Application form, payment of a fee, and participation in an interview with the island’s Deputy Governor.

Qatar

  • Region: Western Asia
  • 183,466.21 million in GDP (2019)

Qatar and Kuwait have numerous similarities. Its economy is equally based on oil, albeit in Qatar’s case, the energy industry earns from natural gas as well. Regardless, industry contributes for more than half of the country’s GDP, as it does in Kuwait. Unfortunately, the CIA reports that another resemblance between Qatar and its neighboring Middle Eastern countries is that many employees are subjected to forced labor.

Those wishing to live and work in Qatar must first find a job with a local firm, as well as obtain police clearance from their home country. In 2017, Qatar implemented a waiver system for travelers from more than 80 countries, including the United States. This implies that travelers may enter the country without a visa and remain for 30 or 90 days, depending on their nationality. (Americans fall inside the 30-day category.)

Saint Barthélemy

  • Region: West Indies
  • GDP: N/A

Saint Barthélemy became a French overseas collectivity in 2007 after being exchanged between France and Sweden from 1648 to 1877. The island’s economy is mostly based on tourism and luxury trade, with the former accounting for the majority of local jobs. The cost of living is noticeably high.

Saint-Barthélemy was designated as an EU foreign territory in 2012. This has given the government authority over the immigration of foreign employees, including non-French European nationals.

Saint Kitts and Nevis

  • Region: West Indies
  • GDP: 1,050.99 million (2019)

The economy of Saint Kitts and Nevis is based on tourism, which supplanted sugar as the country’s backbone in 1970. In reality, the government shut down the sugar sector in 2005 after it had been losing money for decades. Saint Kitts and Nevis has one of the world’s highest debt-to-GDP ratios, despite attempts to diversify its agricultural economy.

Saint Kitts and Nevis offers economic citizenship programs to foreign nationals as a partial answer to its monetary troubles. Expats may seek residency on the island by making financial investments.

Somalia

  • Region: Africa
  • GDP: 917.04 million (1990)

Somalia has been plagued by factional violence since the fall of Siad Barre’s dictatorial administration in 1991, and the country today lacks effective national governance. The Transitional National Government was formed in 2000, followed by the Transitional Federal Government in 2004. The country’s informal economy is dominated by cattle, money transfer services, and telecommunications.

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Somalia’s federal government enacted a new strategy in 2015 to reduce the country’s dependency on other countries and create more opportunities for the local population.

The Bahamas

  • Region: West Indies
  • GDP: 12,827 million (2019)

Tourism contributes half of the Bahamas’ GDP and work force. The financial services industry is the second-largest in the Archipelago, accounting for 15% of GDP. The Bahamas is also the only nation in the Western Hemisphere that is not a member of the World Trade Organization.

According to the Bahamas Immigration Act, foreign investors may enter the nation by purchasing a residential property worth at least B$500,000 ($500,217) and demonstrating that they have adequate resources to sustain themselves and any dependents for a period of up to ten years.

The United Arab Emirates

  • Region: Western Asia
  • 421,142.27 million in GDP (2019)

Although the United Arab Emirates has long relied on oil and natural gas for the majority of its income, this Middle Eastern nation has effectively diversified its economy to the point that the energy sector now accounts for barely 30% of its GDP. Industry and the services sector now account for approximately half of the UAE’s total GDP. The nation enjoys a good level of life, and there has recently been an increase in investment on job creation and infrastructure expansion.

Creating more work possibilities for foreign nationals is part of the UAE’s strategic objective for the next years. An expat must be sponsored by a local citizen or company via the Kafala sponsorship scheme in order to work in the UAE. However, visas are only issued briefly and must be renewed. If the sponsored positions are lost, the employees will be forced to leave the nation.

Turks and Caicos Islands

  • Region: West Indies
  • GDP: 1,022.31 million (2018)

Even after temporarily being independent in 1982, the Turks and Caicos Islands have remained a British Overseas Territory since 1962. These islands’ economies are mainly reliant on tourism, financial services, and fishing. More than 90% of overall GDP is generated by the service sector.

To be eligible for a residence permit, one must have “independent means,” rent/own a home, be able to invest up to $500,000, or be married to a local person. Those who fit any of the following conditions just simply submit an application form to the Director of Immigration and pay a modest fee.

Vanuatu

  • Region: South Pacific Ocean
  • GDP: 917.06 million (2019)

In contrast to the usual island economy on this list, agriculture accounts for more than a fourth of Vanuatu’s GDP and employs around two-thirds of the people. Tourism, offshore financial services, and fishing are additional important sectors. Following the devastation wrought by Cyclone Pam, the government has been attempting to boost tourism while also increasing cattle production.

The route to Vanuatu citizenship is simple, but costly. Following completion of the first FIU clearance procedure, which includes a $10,000 cost, a gift of $135,000 to a single individual or $185,000 to a family of four must be made via the Vanuatu Development Support Program.

Vatican City

  • Region: Western Europe
  • GDP: N/A

The Holy See’s (the Catholic Church’s global government) economy is principally sustained by investments, real estate profits, and contributions. The Vatican Municipal state is a 121-acre walled territory inside Rome’s city limits. Both are governed by the Bishop of Rome, often known as the Pope. The Vatican City government survives on the selling of stamps, coins, medals, and other tourist souvenirs, museum entry fees, and book sales. The Secretariat of the Economy was established in February 2014 as part of a push to overhaul the Holy See’s finances in response to a mounting deficit.

Cardinals living in either the Vatican City State or Rome, Holy See ambassadors, approved inhabitants of the Vatican City State, people having papal authority to remain in the State, and wives and/or children of local citizens are all eligible for Vatican City citizenship.

Wallis and Futuna

  • Region: South Pacific Ocean
  • GDP: $60 million (2004)

Agriculture, together with cattle and fisheries, accounts for 80% of Wallis and Futuna’s revenues, as it does for Vanuatu. The public sector employs 70% of the people in this French overseas collectivity, however about two-thirds are unpaid. France is in charge of funding the public sector, as well as healthcare and education.

Because Wallis and Futuna is a French collectivity, the entrance conditions are the same as in France.

Western Sahara

  • Region: North Africa
  • GDP: $906.5 million (2007)

Western Sahara is a non-autonomous area with a market-based economy focused on fishing, phosphate mining, tourism, and pastoral nomadism. Western Sahara’s natural riches are often exploited as a consequence of its unclear legal position.

Morocco has built a significant military presence in Western Sahara as part of an endeavor to incorporate the area into the Moroccan Kingdom and has provided incentives to its residents to settle there.

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