Income taxes

Which countries in the world don’t levy personal income taxes?

Benjamin Franklin (one of the founding fathers of the United States of America): “The only things certain in life are death and taxes”. 

While there are various sorts of taxes in the world, like corporate tax, personal income tax, payroll tax, sales tax (VAT) and property tax, personal income tax often seem to be a hot topic around government elections and a popular discussion topic at birthday parties. Personal income taxes are an important source of income for governments and it determines what portion of your salary is actually available to you to spend each month. A few years ago I moved from the Netherlands, where I paid a personal income tax rate between 42% – 52%, to the United Arab Emirates (UAE) with a personal income tax rate of 0%. And no, this wasn’t the main reason why I left the Netherlands.

Many people back home think that I lead a wealthy life in the UAE, because I don’t pay any personal income tax. But, a personal income tax of 0% doesn’t mean that daily life is cheap. Although the majority of the government expenditures is paid through the income of the sales of oil and gas, we pay our share through other fees, or hidden taxes. Of course, the money has to come from somewhere. A few examples:

  • Housing fees (5% of your yearly rent);
  • Monthly house rents in cities like Abu Dhabi and Dubai are three times more than the price of a similar house in the Netherlands in one of its main cities;
  • Toll roads instead of road tax;
  • Tax on alcohol (30%);
  • 10% municipality fees are included in restaurant bills.

The reason for writing this blog now, is because Christine Lagarde (Managing Director of the International Monetary Fund) visited the UAE recently and had a very clear message: “The region should prepare itself for (personal income) taxes”.
Since the Gulf budgets have been hit as oil prices have declined in the past 1,5 years from $110 per barrel to less than $30 per barrel, the traditional business models of those governments have been disrupted. In the UAE the oil sector accounts for less than a third of its GDP, whereas the oil sector clearly dominates in the Gulf Cooperation Council (GCC) counterparts. The UAE (compared to its neighboring Gulf nations) has already diversified its economy, with thanks to Dubai. Dubai has become a regional trading and financial powerhouse and a very attractive and rapidly growing tourism destination (Source: Rabobank, 2014. Country Report UAE).

But diversifying the economy is not enough. The IMF has long suggested that the UAE should introduce a VAT in coordination with the GCC countries. On January 1st, 2018 a VAT of 5% will be levied, but around 150 food items, health care and education will be exempted from the tax. A relief: personal income taxes will not be levied in the coming years (Source: 7DAYS UAE, February 25, 2016).

So, if you don’t want to pay personal income taxes, which countries do you have to go to? (Well, you never know how long these tax benefits will last once the IMF or the European Union puts its pressure on those countries to levy personal income taxes. Most recent example is Andorra, which has managed not to apply any personal income tax until 2015).

List of 16 countries with no personal income tax spread over the different continents:

Middle East (the below six countries have in common that their economy depends on crude oil and natural gas reserves)
1) United Arab Emirates (UAE)
2) Qatar
3) Oman
4) Kuwait
5) Bahrain
6) Saudi Arabia

Caribbean….crystal blue waters and powder white beaches (the below five countries have in common that their economy depends on tourism and offshore financial centers)
7)   Cayman Islands
8)   The Bahamas
9)   Anguilla (also famous for its lobster fishing)
10) British Virgin Islands
11) Turks and Caicos Islands

North America
12) Bermuda: its economy is primarily based on tourism and offshore financial services.

Asia
13) Brunei Darussalam: its economy depends on crude oil and natural gas production.
14) Maldives: fisheries and tourism are the main sources of income for the government.

Oceania
15) Vanuatu: this South Pacific island economy is based primarily on small-scale agriculture. Fishing, offshore financial services and tourism are other economic pillars.

Europe
16) Monaco: is after the Vatican the smallest country in the world and has one of the highest population densities on the globe. Monaco is home to the largest number of millionaires and billionaires per capita and is famous for its gambling and luxury goods and services industry. Similar like the UAE, in Monaco the local people account for less than 20% of the total population.

If I would have to leave the UAE someday, my preferences would go to the Caribbean. Not for the long term, but since I have Caribbean blood (and always in desperate need of natural vitamin D) I have a great weakness for this beautiful territory on the globe…

Sources: KPMG (2011) KPMG’s Individual Income Tax and Social Security Rate Survey 2011, CIA World Factbook, countries’ websites.

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