Governments levy taxes to fund vital public services and to build and maintain infrastructure. In the U.S., taxes support programs like Social Security and Medicare. For tax years 2023 and 2024, the top marginal tax rate for the highest-earning Americans is 37%. In Europe, Denmark, France, and Austria have three of the highest personal income tax rates.
Key Takeaways
- Globally, income taxes are a source of government revenues.
- Some countries do not impose an income tax on their residents or citizens.
- To fund operations, countries without income tax rely on other types of taxation, such as VAT and property tax.
Revenue Sources
Income taxes are imposed by governments on earnings by individuals and businesses. The United States tax system is progressive, meaning those who earn more will owe more in taxes. Although many nations rely on income taxes to generate revenue, some levy an alternative payment source such as:
- Value-added taxes (VATs)
- Real property taxes
- Casino taxes
- Import duties
- Stamp duties
- License fees
Tax-Free Locations
Bahrain
While oil and natural gas are most of the country's budget revenues, Bahrain also has a prominent hospitality and retail sector. The country does not levy personal income tax but requires citizens to contribute to Social Insurance and unemployment programs. The corporate income tax levied on oil companies is 46% as of 2024.
Foreign workers who receive a work visa from a local employer are eligible for a residence permit. There's also a dependents residency permit for those married to a Bahraini citizen, though this will have to be requested by their employer.
Bermuda
Bermuda is one of many British Overseas Territories that don't levy an income tax. The tourism and services industry dominates the island's economy. Bermuda is a hub for international business and an offshore financial center.
Outside of marrying a resident, those looking for a Permanent Resident's Certificate require a period of prior residency and a $50,000 fee.
British Virgin Islands
The British Virgin Islands are an overseas territory in the Caribbean heavily reliant on tourism. Livestock is a prominent agricultural activity. In 2017, Hurricane Irma devastated the island of Tortola, and 80% of residential and business structures were destroyed or damaged. The U.S. dollar has been the legal currency in the British Virgin Islands since 1959, as its economy is closely tied to the U.S. Virgin Islands.
To become a permanent resident, a person must reside in the British Virgin Islands for 20 years. They must then submit a residence form to the Government of the British Virgin Islands Immigration Department.
Brunei
Like Bahrain, Brunei owes much of its economic prosperity to its many oil and natural gas fields. Most of the population is employed by the government. Citizens rely on publicly funded medical services and education. The House of Bolkiah, the royal family of Brunei, has remained in power in Brunei for more than six centuries.
Cayman Islands
Like Bermuda, the Cayman Islands are one of the British Overseas Territories and home to a prominent offshore financial center. The services sector accounts for over 85% of economic activity, and the Cayman Islands act as a dominant offshore banking territory. Applying for permanent residency to the Cayman Islands requires one has resided there for at least 15 years.
Kuwait
Kuwait is heavily dependent on oil and petroleum to support its substantial GDP. Although the country does not impose personal income tax, Kuwait levies a 15% corporate income tax. Kuwait is a proponent of renewable energy and a regional finance leader.
Monaco
Monaco is a popular tourism destination and a major banking center. Tourism is a leading sector, and the country is known as a tax haven. Monaco is the only tax-free territory inEurope. Obtaining citizenship requires a deposit of 500,000 to 1,000,000 euros in a Monaco bank and buying or renting a home.
Oman
Oman is a Middle Eastern country that relies on oil and gas and supports a welfare system. Sultan Qaboos bin Said, Oman's longest-reigning monarch, passed away in January 2020. The country charges a 5% value-added tax (VAT) on certain products. Corporate income is levied up to 15%.
Qatar
Qatar's economy is reliant on oil and natural gas. Foreign investors can operate in the Qatar Free Zones Authority (QFZA), established in 2018, which oversees two free zones in Qatar, Ras Bufontas and Umm Alhoul. Setting up in the zones includes 100% ownership, a flexible foreign workforce, and a possible tax holiday of up to 20 years for corporate income tax (CIT). The corporate tax rate is 10%.
Saint Kitts and Nevis
The economy of Saint Kitts and Nevis relies on tourism, an industry that replaced the original mainstay, sugar, in 1970. The region is known as an offshore financial and telecommunications hub. Saint Kitts and Nevis provides economic citizenship programs for high-net-worth foreign nationals and their families.
The Bahamas
The Bahamas thrives on tourism, international banking, and investment management, which accounts for 85% of GDP. The Bahamas is the sole country in the Western Hemisphere that isn't part of the World Trade Organization.
The Immigration Act of The Bahamas makes immigration possible for foreign investors with a residential property purchase of at least $500,000, sufficient means to support themselves and any dependents, and residing in the country for up to 10 years.
The United Arab Emirates
The United Arab Emirates enjoys an established infrastructure, a stable political system, and a liberal trade regime in the Gulf region. A large proportion of the country's GDP is derived from non-oil revenues as the country moves away from the energy sector. The UAE levies a 9% corporate income tax and a standard 5% VAT.
In 2020, immigrants made up about 88.1% of the total population. Residence visas vary according to their type and the sponsor and range from one to 10 years.
Additional locations without personal income tax include Anguilla, Maldives, Saudi Arabia, Somalia, Turks and Caicos, Vanuatu, and Western Sahara.
Who Is Required to Pay Income Tax in the United States?
All U.S. citizens and green card holders are legally obligated to file U.S. income taxes regardless of where they live. To avoid taxation, green card holders must file Form I-407 with the U.S. Citizen & Immigration Service, indicating that they have abandoned their green card holder status. Resident aliens are taxed on their worldwide income, the same as U.S. citizens. Nonresident aliens are taxed only on their income from sources within the United States and on income from a trade or business in the United States.
What Is the 183-Day Rule?
The 183-day rule is used by many countries to determine taxation rules for a resident. In the U.S., theInternal Revenue Service(IRS) uses 183 days as the "substantial presence test," which determines whether non-U.S. citizens or non-permanent residents should be considered residents for taxation purposes.
What Rules Discourage U.S. Citizens From Moving to Countries With Lower Income Tax?
For U.S. citizens,obtaining citizenshipis difficult in some countries. To limit potential incometax revenuefrom leaving the country, U.S. tax authorities have imposed rules to make it both difficult and expensive to renounce U.S. citizenship. Citizens need to renounce their U.S. citizenship following the rules and circ*mstances described in theexpatriation tax provisions.
The Bottom Line
Multiple countries, including the 12 highlighted here, do not impose income tax. Revenue in these nations is funded in other ways, including corporate income tax or value-added taxes.
