This means that you work, 4 months a year for the government. At the time of paying income tax, everybody hates it, but there are some countries in the world that charge zero income tax, but they are rich How? How do countries with zero tax or close to zero tax earn money. How are they able to give their citizens good roads, good health care, and quality of life. Can Over country also remove income tax and become a zero tax country?
What are tax havens
Zero tax nation are called tax havens which don’t charge tax from their residents as well as foreigners.
These are the countries included in tax free countries.
Bahamas, Cayman Island, Hong Kong, Panama, Bermuda, Curacao, Mauritius, Turks And Caicos Island, Bristish Virgin Island, Dominicia, Monaco, Cyprus.
But there are some surprising entries in this list, Some countries that are considered developed countries whose quality of life is considered the best in this world. And that countries name is:
Singapore, Ireland, Netherlands, UAE, Liechtenstein
What is the logic?
The logic is that some countries believe that they need foreign investment more than tax. If people from abroad come here, see that the tax here is less, and invest here, then businesses will grow here and there will be progress. Some states of America also do the some. There are not one but two income taxes in America. The federal tax which is charged by the central Government, and the state tax which is charged by the state government. There are some states where state taxes are zero. So the companies shift their headquarters to these states. For Example, Tesla. Tesla’s Gigafactory is in Texas Where there is no state tax. Even a big company like tesla does not pay tax by applying such tricks. Companies like Apple and Facebook take is a step father. They take all their profits in Ireland so that they can take advantage of the relaxed tax laws there. What is the benefit of the company or the people in this whole transaction, it is obvious, their tax is saved, but what is the benefit of a country or a state?
Let us understand how tax haven countries earn money.
To make it easier for you to understand, we have divided these countries into three categories.
6. Saudia Arabia
4. Cayman Islands
3. United Kingdom
4. United State of America
How Do Gulf Countries earn money?
Gulf countries, situated in the Middle East like UAE, Saudi Arabia, and others, stand out for their unique tax policies. They refrain from imposing income, wealth, inheritance, and capital gains taxes on both nationals and foreign workers. This is primarily due to their reliance on oil-related revenue. For instance, Saudi Arabia taxes oil extraction profits between 50% and 85%, while UAE recently introduced a corporate tax of 9% on companies earning over 3,75,000 dirhams (approximately 85,00,000). This corporate tax rate is notably lower than that of other countries.
These countries tend to focus on taxing oil-related industries heavily while providing tax convenience for other sectors. This approach enables them to attract foreign businesses engaged in oil-related activities. Meanwhile, there are indirect taxes like rental income tax in Bahrain (7-10%), real estate transaction tax in Saudi Arabia (5%), and a 20% tax on foreign banks in UAE. Although citizens directly avoid income tax, the government collects revenue through corporate taxation.
These Gulf countries, characterized by their monarchies, have substantial royal family wealth that funds ambitious projects independently. Notable examples include Saudi Arabia’s Neom and Dubai’s Burj Khalifa. Their ability to manage with lower taxes is aided by their relatively small populations and high middle-class income.
How do Island countries make money?
Island countries are those small countries whose entire economy runs on tourism. Many of these countries are Caribbean island countries or former European colonies.
Due to the branding of zero tax, they attract foreign investors and tourists, ask to set up businesses in their country, and earn money in a different way.such as indirect taxes, tourism reveues, lincenses and registration fees, citizenship by investment, property taxes, and departure taxes.
Let us understand them one by one.
Indirect Taxes: Under indirect taxes, there are GST, VAT, and customs duties. All of them are consumption taxes, which mean the more people spend the more will be these taxes. Custom duties are on imports. If a country imports a lot, then a tax is levied on those items.
Tourist Revenues: The Bahamas is a small country, but the last year, just in 9 months, 6.6Million tourists visited there. When these tourists live in a hotel or an Airbnb, they have to pay property tax.
Licenses and Registration Fees: If you want to start a company in these tax free countries, they charge licenses and registration fees, because foreigners come to these countries for starting a company.
Citizenship by Investment: Many Countries In the Caribbean Islands offer citizenship by investment. This mean they ask people to invest in real estate or donate in the economic welfare fund. And these are not small amounts. For example, If you want to take citizenship by invenstment in Dominica, you can invest 2 Lakh dollars in government approved real estate, or you can donate 1 Lakh dollars half revenue of Dominica’s budget comes from this economic citizenship program.
Property Taxes: Property taxes are charged on the purchase price of real estate. In citizenship by invenstment, these countries give the option to people to buy properties. And charge taxes on these properties.