Countries With Zero Income Taxes

Wednesday, October 3, 2012 |

​Countries With Zero Income Taxes
Personal income taxes are a huge source of revenue for governments globally, and the debate on taxes is a hot-button issue in the U.S. presidential election.

But, there are some countries where you can be 100 percent certain that you don’t have to pay income tax.

We’ve put together a list of eight countries that have no income tax, based on KPMG’s 2011 survey of 96 countries. Some of the countries are well-known tax havens, while others have managed to use natural resources to fund government expenses.

United Arab Emirates
​Countries With Zero Income Taxes

The United Arab Emirates has one of the world's highest per-capita incomes, $48,200, and has no personal income or capital gains taxes.

Instead of generating revenue from income tax, the country, which is the third-biggest exporter of crude globally, is dependent on taxes from oil companies that pay up to 55 percent in corporate taxes. Foreign banks pay about 20 percent. Oil revenue, for example, accounted for 80 percent of consolidated government income in 2010, while income from various taxes, fees and customs duties made up less than 12 percent, according to government statistics.

While expatriate employees don’t pay for social security in the Arab country, UAE citizens must make monthly contributions of 5 percent of their total earnings for social security. Employers of citizens also have to make monthly contributions of 12.5 percent of the worker’s base salary for social security and pensions. Other indirect taxes include housing fees, road tolls and municipal taxes. The UAE charges a 50 percent tax on alcohol, and if a person has a liquor license and buys alcohol to drink at home, an additional 30 percent tax is charged.

​Countries With Zero Income Taxes

Gas-rich Qatar became the world's richest country this year with GDP per capita of more than $88,000, according to Forbes.

Relying on its natural gas reserves - which are the world's third largest - for revenue, Qatar has invested heavily in infrastructure to liquefy and export the commodity. The country levies no taxes on personal incomes, dividends, royalties, profits, capital gains and property. Qatar nationals, however, have to pay 5 percent of their income for social security benefits, while employers contribute 10 percent for the fund.

Earlier this year, reports surfaced that the government was considering a value-added tax in an attempt to broaden its revenue base and reduce its non-hydrocarbon deficit, which was equivalent to 17 percent of the country's GDP last year. Other indirect taxes include a 5 percent charge on imported goods.

​Countries With Zero Income Taxes
Like neighboring Middle Eastern countries, Oman derives the majority of its revenue from crude oil.

The country's oil revenues increased 35 percent  in April to $8.49 billion compared to the same month last year and accounted for over 71 percent of the sultanate's total revenues. Although, there is no individual income or capital gains taxes in Oman, citizens must contribute 6.5 percent of their monthly salary for social security benefits. A stamp duty of 3 percent is also charged on the purchase of property.

Despite its oil wealth, Oman has recently been rocked by a series of protests by residents demanding jobs and employment benefits. Several strikes at petroleum plants  over pay and pensions have seen activists jailed in the biggest labor strife in Oman since protests last year against corruption and unemployment triggered by the Arab Spring. There's growing resentment in the country over the jobs offered to 800,000 expatriates, while the unemployment rate for citizens was 24.4 percent in 2010 and is rising, according to the International Monetary Fund.

​Countries With Zero Income Taxes

As the world's sixth-largest oil exporter, Kuwait's oil revenue of $63.5 billion  between April and November of last year, accounted for 95 percent of the government's total revenue in the period.

While there is no income tax in the country, Kuwaiti nationals must contribute 7.5 percent of their salary for social security benefits; their employers make an 11 percent contribution. Despite being one of the world's wealthiest countries per capita, strikes and protests by public sector workers unhappy about pay have led the government to introduce a 25 percent increase in wages. The IMF, however, warned Kuwait in May that such spending could impact the sustainability of its public finances . Only 7 percent of Kuwaitis work in the private sector, and the rising cost of retirement could put pressure on government spending.

Kuwait is no stranger to political turmoil, ushering in four new parliaments in the past six years. The country has been marred with corruption scandals implicating key political figures, while poor parliament-government relations have hampered policymaking. The IMF has recommended that Kuwait introduce a value-added tax and comprehensive income tax system.

Cayman Islands
​Countries With Zero Income Taxes
Well known as an offshore financial center, the Cayman Islands are a big draw for the wealthy with its zero personal income and capital gains taxes and because it has no mandatory social security contributions.

Employers, however, are required to provide a pension plan for all workers, including expatriates who have been working for a continuous nine months in the islands. While there is no value added tax or government sales tax, the country does have some indirect taxes such as import duties, which can range up to 25 percent.

A high standard of living in the Caymans also means high property prices. The average cost of an apartment in April was over $550,000, while the average cost of a house was more than $736,000, according to government figures.

​Countries With Zero Income Taxes
With no personal income tax, Bahrain relies on output from the Abu Safa oilfield, which is shared with Saudi Arabia, for about 70 percent of its budget revenue.

For social security benefits, citizens contribute 7 percent of their total income to the government, while expatriates pay 1 percent. Employers must also make a contribution of 12 percent of a citizen's income for social insurance, and pay 3 percent for expatriate employees. Other indirect taxes include a stamp duty of up to 3 percent of the value of the property on real estate transfers. Expatriates also have to pay a 10 percent municipal tax for renting a home in the Persian Gulf state.

Despite its oil wealth, Bahrain had a budget deficit of $83 million in 2011 and is considering issuing an international bond . The country has also been in turmoil from pro-democracy protests by majority Shi'ite Muslims against a Sunni-dominated government. The protests began in February 2011 and followed uprisings in other Arab nations.

​Countries With Zero Income Taxes

Considered one of the world's most affluent countries, Bermuda also has among the world's highest cost of living.

While there is no income tax, workers may be asked by employers to contribute up to 5.75 percent of a 16 percent payroll tax that the employer has to pay to the government on the first $750,000 of an employee's income. Workers also have to pay $30.40 per week toward social security insurance, which is matched by the employer. Other taxes include a property tax of up to 19 percent depending on the annual rental value of the land determined by the government. A stamp duty also applies to inheritance/estates from 5 percent to 20 percent depending on the property value.

Custom duties levied on imported goods are a major source of revenue for the government. Individuals relocating to Bermuda are charged 25 percent for goods they bring. Given its relatively low taxes, the country is a big draw for international firms, with more than 20 percent of its population being foreign-born. However, a 10-year work permit in the country costs a whopping $20,000.

The Bahamas
​Countries With Zero Income Taxes
Among the wealthiest Caribbean countries, the Bahamas features an economy that's heavily dependent on tourism and offshore banking.

About 70 percent of government revenue comes from duties on imported goods. Even though there is no personal income tax, employees have to contribute 3.9 percent of their salary, up to a maximum of $26,000 annually, for a form of social security called National Insurance. Employers also have to contribute 5.9 percent of a worker's salary for National Insurance, while self-employed individuals are charged 8.8 percent. The country also has a property tax of up to 1 percent.

Despite its prosperity as a financial center, The Bahamas has an unemployment rate of 15 percent and the political parties are feuding over oil exploration projects in its waters that could come at the cost of tourism.