Countries without taxes: the best places with zero income tax

What is the difference between low tax countries and no tax countries?

The difference between tax-free countries and low-tax countries is that tax-free countries have no income tax at all, which often does not include other forms of taxation such as capital gains, withholding tax, corporate tax. There are currently 23 countries in the world that fit this description.

While low tax countries have a marginal tax rate that is usually less than 10%. Low tax countries can be a good alternative as they often have a better reputation for banking and incorporation.

Low tax countries

There are also countries with extremely low income tax rates. This includes places such as:

• Malaysia
• Dominican Republic
• Singapore
• Chech republic
• Mexico
• Guatemala
• Vietnam
• Andorra
• Belize

Countries with a territorial tax system only tax income earned within the country, while income earned abroad is not taxed.

For example, if you are a digital nomad, run an online business, or are a global investor with income earned worldwide, becoming a resident of a country with a territorial tax system will ultimately achieve the same goal as living in a tax-free country.

In many cases, countries with low taxes and/or territorial tax systems make it easier for foreigners to obtain residence permits than in tax-free countries. This is largely due to the nature of the economies of tax-free countries, which have special financial rules that favor certain industries.

The best countries without taxes

Just because you decide to move to a country where there is no income tax does not mean that you are exempt from taxes. To completely eliminate your income tax liability, you need to establish tax residency, which means moving your place of residence. This is achieved by obtaining permanent resident status, usually by applying for an appropriate visa and living in the country for more than 183 days a year.

However, if you're an American, you can't get away that easily; you're still required to pay taxes on all your worldwide income, no matter where you live. Although you can deduct more than 120,000 of income through the Foriegn earned income exclusion. This means you likely won't have to pay income taxes on any money you earn overseas up to $120,000.

Anything more than that and you are liable.

The only way to become completely tax free if you are an American is to renew your US citizenship. Fortunately, those holding other passports around the world are not subject to the same harsh tax regime and are exempt from having to pay income tax if they change tax residence.

More than 20 countries have no income tax; however, most of them are either difficult to obtain residency or are countries that few would want to live in to begin with. Therefore, we have narrowed our list to 6 countries that have no income tax, taking into account factors such as quality of life, cost of living and ease of obtaining residency.

List of countries without taxation

1. United Arab Emirates

The UAE is one of the few Gulf states that has no income tax (others include Kuwait, Oman and Qatar), largely due to the income generated from its oil exports. Additionally, the UAE does not impose any withholding taxes or corporate income taxes (for most businesses), and there are no exchange controls.

What really sets the UAE apart from its neighbors is that it is one of the easiest Gulf states to live and work in. Known for having the freest economy in the world, the UAE welcomes foreign investment and expats who want to move and take advantage of the many high-paying job opportunities.

The UAE recently started issuing 10-year residence visas to foreigners, which are quite easy to obtain. It's a very comfortable and functional place to live, making it one of the best tax-free countries to consider.

2. Saint Kitts and Nevis

Not surprisingly, the full list of countries with no income tax is dominated by Caribbean tax havens. And probably the number one choice that allows you to easily obtain residency and/or citizenship is the island nation of St. Kitts and Nevis.

Like other countries on this list, St. Kitts and Nevis has no income tax at all, or any taxes for that matter. They make most of their income from tourism and, you guessed it, their offshore financial industry.

St. Kitts and Nevis makes it easy to obtain permanent residence, and they also offer the oldest and most famous citizenship by investment program. After devastating hurricane damage in 2017, they are now offering discounted citizenship of $150,000 toward their hurricane relief fund. The entire citizenship process can take less than a year.

This can be a relatively small price to pay for wealthy individuals looking to obtain a second citizenship somewhere that will provide significant tax benefits, a secure second passport, not to mention a new home on one of the most beautiful and enchanting Caribbean islands.

3. Cayman Islands

The Cayman Islands is another Caribbean island nation with no taxes. Like St. Kitts and Nevis, they generate a lot of income from tourism and the offshore financial sector.

The Cayman Islands is one of the Caribbean countries with a higher market. The cost of living is high and you will need to invest a significant amount to maintain your residence permit for a long time. However, it may be a worthwhile option for wealthier investors who would prefer to stay in a location that offers a premium lifestyle in a developed country.

The Cayman Islands are not as well known for offering citizenship by investment, but they generally allow permanent residence to those who earn more than $100,000 per year and invest significant amounts in real estate or local businesses. Therefore, it is a viable option worth considering.

4. Bahamas

Obtaining an annually renewed temporary residence permit in the Bahamas for $1,000 is extremely easy. However, you will need to invest at least $250,000 in real estate to obtain permanent residence, which allows you to become a tax resident and therefore avoid income taxes completely in the long term.

The Bahamas also does not have a citizenship by investment program to speak of. The significant amount of money you'll need to maintain a permanent residence can pay off for those looking to escape to one of the world's most popular beach paradises and tax havens.

5. Vanuatu

The Pacific island of Vanuatu is one of the easiest, fastest and cheapest duty-free alternatives to the Caribbean for citizenship by investment. At a total cost of approximately $200,000, you can become the proud owner of a Vanuatu passport in just two mind-blowing months!

The only potential downside to Vanuatu is that it is quite isolated and "off the grid" so to speak. Traveling there often can be a bit of a hassle. However, it is certainly a worthwhile option for those who need to quickly obtain a fairly affordable second citizenship to get rid of their tax bills.

6. Monaco

The only European country on this list, Monaco has become world famous as one of the best tax-free states for the mega-rich to move to. Obtaining a residence permit and/or citizenship in Monaco is relatively easy, but very expensive. You will need at least several million dollars to prove sufficient wealth to obtain permanent residence.

Moving to a country with a low tax alternative

The idea of ​​moving to a country without income taxes is naturally attractive. However, for many, it may be almost impossible to move to one of the countries where there is no income tax. In most of these countries, it is difficult to establish a permanent tax residence, and becoming a full citizen is even more difficult.

This is why it is certainly worthwhile to also consider low-tax countries and countries with friendly territorial tax systems for a suitable tax-free second residence. Many of these territorial tax countries make it much easier for foreigners to obtain residency and also expand your choices.

Some of the best options in this category include Hong Kong, Singapore, Malaysia and Panama. Malaysia and Panama have particularly simple residency requirements. Panama has the added benefit of having minimum physical presence requirements, meaning you don't have to live in Panama for more than half the year to maintain your residency (like most other countries).

If you're a digital nomad or international entrepreneur, then becoming a tax resident of a country with a territorial tax system can actually offer the same benefits as a country without any income taxes.

How do countries function without income tax?

Income taxes are levied by governments on the income of individuals and businesses within their jurisdiction. Many countries' tax systems are progressive (USA, Canada, UK, Germany, France, etc.), meaning that those who earn more income will have to pay more taxes than those who earn less. For example, in 2017, the average U.S. federal personal income tax rate for the top 1% of the population was more than 25%, compared with a rate of less than 5% for the bottom 50% of the country's population. Of the 40 countries with the highest marginal tax rates, the largest share of taxes comes from income taxes paid by individuals in 37 countries.

With so many countries relying on income taxes to generate the country's income, it is easy to assume that any state that does not levy an income tax will be underfunded. This should not be the case if the country has an alternative main source of income.

There are 23 countries in the world where there is no income tax at all. Of this number, 6 countries are rich in crude oil reserves, the production of which implies large government rents. In addition, the absence of income taxes does not mean that these countries offer a completely tax-free life.