fbpx

Discover the Top 7 Countries with Zero Income Tax: A Comprehensive Guide

Discover the Top 7 Countries with Zero Income Tax: A Comprehensive Guide

Introduction: The Allure of Zero Income Tax Countries

It is no secret that tax burden is one of the key factors when structuring an international business. This accounts for the popularity of so-called offshore jurisdictions as a choice for a company formation, either for holding or operating activities.

Many jurisdictions have recently implemented reforms to eliminate tax regimes that mismatched international standards. Countries with standard taxation, in turn, are taking measures to counter unfair tax competition by imposing various restrictions on the interaction with offshore companies. They include blacklists, higher withholding taxes and enhanced control over banking transactions.    

Despite the reforms, some offshore countries have maintained favourable conditions for starting a business, including zero or low corporate tax rates or exemptions regarding companies’ foreign profits. This review will help you determine which country may be best suited for setting up an offshore company under present-day conditions.  

Seychelles: A Tropical Paradise with Tax Benefits

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist 
15% / 25%
Foreign-sourced income exempted
Financial Summary
(Yes / Yes)
Yes / Yes
No

The income of international business companies (IBCs) incorporated in Seychelles had been exempted from taxes for a long time. The jurisdiction granted the tax-free regime for its IBCs as entities established for business outside the country. It is unsurprising that Seychelles gained customer popularity and remains attractive for company formation. However, it is crucial to take into account some recent changes.  

During the tax reform that started in 2019, Seychelles switched from a “classic” offshore model to a territorial-based taxation principle. As a general rule, Seychelles will not tax the income received by a company from foreign sources but will tax the income (if any) obtained from sources in Seychelles. The standard corporate tax rate in Seychelles is 15% on the taxable income up to SCR 1 million and 25% on the taxable income above SCR 1 million.

Moreover, the amendments of 2021 to the Business Tax Act introduced the taxation of foreign passive income of Seychelles companies, including dividends and interest. Suppose a Seychellois company is a member of a multinational group and derives foreign-sourced passive income. In that case, it falls within the scope of corporate tax unless it has adequate economic substance in Seychelles. Companies (other than pure holdings) will need to have adequate human resources and premises, take strategic decisions and incur adequate expenditures in Seychelles regarding their assets. An IBC fulfilling these requirements can continue enjoying tax exemption for its foreign income.  

British Virgin Islands: A Haven for Offshore Companies

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist
Zero
Financial Return
(Yes / Yes)
Yes / Yes
Yes

The British Virgin Islands is a British overseas territory in the East Caribbean region. In contrast to Seychelles, the BVI remains a long-standing tax haven. BVI companies are widely used in international business and do not pay income taxes. Nevertheless, the BVI has undertaken some company law reforms worth noting to those planning to register a BVI company.

First, in 2018, the territory introduced the economic substance requirements for companies engaged in certain business activities, including fund management, finance and leasing, headquarters, shipping, holding or intellectual property business. To legally continue these activities, the BVI companies must ensure their presence in the Islands to the extent prescribed by law. Such companies must disclose the relevant information to the authorities and are liable to fines for non-compliance.

Second, as of 2023, the BVI companies must prepare and file an annual financial return with their registered agent. The return consists of an unaudited balance sheet and an income statement. The companies’ obligation to maintain adequate financial records and underlying documents remains in place.       

The BVI are temporarily listed in the European Union’s list of non-cooperative tax jurisdictions (“EU blacklist”). This fact can complicate a company’s cooperation with partners from the EU and hinder international payments. The jurisdiction was included in the list in February 2023 due to insufficient compliance with the OECD standards.

Panama: A Strategic Location for Business and Tax Savings

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist
25%
Foreign-sourced income exempted
Audited Financial Statements
(Yes / No)
Yes / YesYes

Panama is a well-known centre for the incorporation of companies, private foundations and the registration of ships. Due to its tax rules and business-friendly environment, the country is often classified as offshore, but this is only partially true. Panama uses a territorial tax system, which implies taxation of income derived only from sources in Panama.

The corporate tax rate for taxable income derived from Panama is 25% on net taxable income or 1.17% on gross taxable income, whichever is greater. The foreign-sourced income of a Panamanian corporation is not subject to tax.

The withholding tax on dividends paid by a company operating in Panama depends on the source of income out of which the dividends are paid. Dividends paid by the Panamanian corporation operating outside of Panama are not taxed at source if its profits have been derived from foreign sources. Otherwise, the withholding tax may be imposed at a 5 or 10% rate.  

Cayman Islands: A Caribbean Tax-Free Financial Center

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist
ZeroVoluntary / NoYes / YesNo

The Cayman Islands is a tax-free jurisdiction known for its stability, comfortable company formation procedures, and well-developed banking and legal services sectors. The territory does not impose corporate tax, withholding and other taxes on corporate profits and distributions.

The most popular type of offshore company in the Cayman Islands is an Exempted Limited Company (ELC). They are exempted from taxation and cannot run business within the Islands. There is no requirement for ELCs to prepare or file audited financial statements. At the same time, companies must keep their books of account and underlying documentation related to their transactions, assets and liabilities.     

Companies must pay annual fees to renew the active status on the Register. The amount of the annual fee depends on the company’s authorised share capital fixed in its memorandum of association. ELCs file simple annual (non-financial) returns confirming compliance with the Companies Law. 

United Arab Emirates: A Booming Economy with Free-Zone Options

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist
0% / 9%
or
0% for Qualified Free Zone companies
Audited Financial Statements
(Yes / Yes)  
Yes / YesNo

The United Arab Emirates is a fast-growing economy in the Middle East, offering a number of facilities for foreign investors. Companies can be registered in the UAE “mainland”, or various free zones, some of which are universal and some focused on a specific industry. Both options are now available for 100% foreign shareholders, except for several government-controlled sectors.  

For a long time, most UAE companies in most sectors enjoyed a zero-tax regime. The UAE first introduced a corporate tax in 2023. It applies to both mainland and free-zone companies. The corporate tax rate in the UAE is 0% on taxable income not exceeding AED 375,000 and 9% on taxable income exceeding this threshold. 

The income of free-zone companies will be subject to tax unless it qualifies for the tax exemption under new conditions. They include “qualified income” received from “qualified activities”, an adequate level of “economic substance” in the free zone and compliance with transfer pricing and other rules. If these conditions are met, a free-zone company’s qualified income will be exempt.  

Hong Kong: A Dynamic City with Attractive Tax Policies

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist
8.25% / 16.5%
Foreign-sourced income exempted
Audited Financial Statements
(Yes / Yes)
No / No  No

Hong Kong (China’s Special Administrative Region) is one of the prestigious jurisdictions in the Asian-Pacific region. Companies in Hong Kong are subject to full-fledged corporate and tax compliance requirements. All Hong Kong companies must keep accounting records and file audited financial statements together with the tax return to Inland Revenue Department.

Hong Kong provides corporate taxation at 8.25% or 16.5% on Hong Kong-sourced income. If a company does not operate within Hong Kong and derives income only from foreign sources, it can be exempt from profit tax. No withholding tax is imposed on dividends or interest a Hong Kong company pays to a non-resident.

To be exempt from taxation of foreign profits, a company must avoid having any operations in Hong Kong. All business contracts must be made and executed outside the jurisdiction. No suppliers or customers located in Hong Kong are allowed. The IRD does not grant the exemption automatically but upon the taxpayer’s application supported by the relevant evidence (“offshore tax claim”). 

Singapore: A Global Business Hub with Tax Incentives

Corporate taxFinancial reporting
(prepare / file)
Redomiciliation allowed
(in / out)
EU blacklist
17%
Foreign-sourced income exempted
Audited Financial Statements
(Yes / Yes)
Yes / NoNo

Singapore is a famous business hub in South-Western Asia, ranked first in the world economic freedom ranking 2023. The country is notable for its advanced financial sector, clear and sustainable regulatory framework and high level of transparency.

The standard rate of corporate tax is 17%. 75% of the first SGD 10,000 taxable income and 50% of the following SGD 190,000 taxable income are tax exempted. No withholding tax is imposed on dividends paid by a Singapore-resident company to a non-resident.

Singapore applies a territorial-based taxation. The tax is imposed on the company’s income derived from or remitted to Singapore, while the foreign-sourced income not remitted to the country is not subject to tax. This exemption applies if the company is managed and controlled from outside Singapore and has no bank accounts within the country. 

Conclusion: Making the Right Choice for Your Tax-Free Destination

The choice of jurisdiction depends on a company’s purposes, its role in a multinational group, a country’s tax rules and statutory requirements, cost of annual maintenance, availability of banking services, confidentiality and other factors. Recently, such a choice has become more complicated due to frequent changes in legislation and the obsolescence of previously popular solutions.    

Businesses which put zero taxation in the first place can choose between the BVI or the Cayman Islands. Seychelles can be a compromise option if a company is ready to comply with the new requirements regarding foreign passive income. Companies with totally overseas turnover will consider Panama, Hong Kong or Singapore as countries providing tax exemption for foreign profits, though under different conditions. As a unique low-tax jurisdiction, the UAE stands apart from its competitors, but those who choose it can benefit from local tax incentives and other favourable investor options.    

Please do not hesitate to contact our specialists to choose the proper jurisdiction and to set up your company.

Click to rate this page!
[Total: 3 Average: 5]

Share this

Facebook
VK
Telegram
Twitter
Print

Still have questions? Contact us today

Scroll to Top

Book a Free Consultation

The purpose of the initial consultation is to introduce you to our services, as well as to discuss your individual needs related to company registration (maintenance) and opening a bank account.