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  • Writer's pictureShreyan Shrimali

In Pursuit of Zero Taxation

Updated: Jan 28

Have you ever thought of paying 0% income tax?

No, I am not saying you should earn at minimum wage to avoid taxes, but what if what you earn can be all by yourself and you don’t have to pay income tax? The answer is 0% income tax countries. But what are 0% income tax countries, and will they be forever income tax-free? Many people also believe that there are no taxes for companies, so let’s find out in this blog.

What are income tax-free counties?

Countries where there is no personal income tax are known as income tax-free countries, like United Arab Emirates. But Under the Federal Decree-Law No. 47 of 2022 on the Taxation on Corporations and Businesses (‘UAE CT Law’), natural persons who conduct a business or business activity in the United Arab Emirates will be subject to UAE CT at 9% where the total turnover derived from such business or business activity exceeds 1 million UAE dirham (AED). This means global minimum corporate tax still implies, which we will discuss more later.

You can also check the complete list of income tax-free countries here.

There are several advantages of an income tax-free country. For example, these countries attract lots of foreign investment, direct or indirect, which brings tremendous opportunity for the government to expand the economy.

There is a lower cost of living with high disposable income, and families and individuals can spend more, which helps the economy as well.

Many people are attracted by it, and millionaires have shifted to these countries to take advantage of it. In 2022, 7,500 HNI shifted to Dubai. HNI is a person who has wealth greater than 1 million USD or 8.3 Crore INR.

These countries have excellent financial stability as well, and having a readily available financial market has many benefits. Foreign banks may subscribe to government bond issues, making money accessible for economic growth and public investment.

Since we know every coin has two sides, there are several disadvantages as well,

Many countries lose taxes to tax haven countries as people try to avoid paying taxes by manipulating the system; according to Tax Justice Network, $427 Billion were lost to tax haven countries. Countries like Singapore have to suffer the most, and yet there are no global rules and regulations for it except for the global minimum corporate tax. Not all tax countries have oil money, and since the government revenue is low, they are not able to provide top-notch public services. There is also global pressure from other countries to raise taxes, and it is directly reflected in the import and export of the country.

So how do they operate?

There are more than a dozen countries where personal income tax is 0%.

90% of Alaska's revenue comes from the oil and gas sector, and the state has no income tax. Oman and Qatar, two oil-rich nations, are also affected.

Meanwhile, nations like the Bahamas or the Maldives make enough money from tourism to support their governments without the need for a personal income tax on citizens.

These countries believe that by raising taxes, they will attract foreign investors as well. We can also see this in the USA, where two types of taxes are state and federal; some states, like taxes, do not have any state tax; hence, many companies, such as Tesla, make their headquarters in these states.

Since there is no income tax, there are other taxes which we need to take care of. for example, in these countries, there is a Rental tax, which is 7-8%, and real estate transaction tax, which is 5%. Some countries that heavily relies on tourism even charge departure tax -

These countries were not charging any tax, and many countries started losing billions of dollars in taxes; therefore, recently, many countries came together and introduced a Global minimum corporate tax, which is around 15%. These taxes only applied to companies, but these clever companies were still able to find ways to avoid taxes, which is a topic for another blog.

The future of these countries,

Recently, Ferrari said they would start accepting cryptocurrency; hence, by Increasing transactions in the blockchain, the chances of tax erosion will be meagre as financial transactions will have a complete history. Over the next ten years, tax havens could cost countries $4.7 trillion per ICIJ. Other countries won't give up their tax money casually, and new laws will keep emerging. Due to the increasing adoption of electric vehicles and renewable energy sources, which may reduce reliance on oil, countries with no income tax will need to adjust and create sustainable economic plans to ensure their survival.

In conclusion, nations with no income tax have alluring financial opportunities, but they also have drawbacks, including tax evasion and pressure on public resources. These nations may levy additional taxes and rely on a variety of cash streams, including oil, tourism, and foreign investments. Even though the implementation of a global minimum corporate tax is altering the landscape, businesses continue to look for ways to reduce taxes. International negotiations and developing legislation will determine these nations' future.

Comment below: Will you consider relocating to a tax-free country like Dubai or Monaco?

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