Income taxation - tax-free havens - comparison
The system of the country’s income taxation is the main source of the funds of the state budget. But still, not all the states put into practice the taxation of the income derived by a tax resident of the country. Below there is a list of countries where the fiscal legislation eliminates such form of budget payments as income taxation (tax on income of natural persons). Countries of the Persian Gulf can serve a vivid example of such jurisdictions.
The United Arab Emirates
Over the last decades, the UAE has maintained the economic stability and has shown the highest indices of the Gross Domestic Product per capita (about 50 thousand US dollars). Besides the state fiscal system fully excludes the corporate and income taxation.
The United Arab Emirates is the world's largest exporter of the oil and gas products, what allows replenishing the state budget by the tax revenues from this economic sector. The enterprises and companies which are engaged in this industry, pay to the budget up to 55% of the profits.
Taxation of the other aspects of life is implemented on basis of the 5% rate which applies only to the incomes from lettings of the real estate.
The interest rate of the social contributions for the employers is 12.5%, but this rate is applied only to the hired local citizens. There are no obligatory social contributions for the foreign citizens.
The primary state income source of Oman is the money from exports and from sale of the oil products. The international experts note that the monthly income from the oil sector exceeds 8 billion. This situation allows the state to release the local population and business from the corporate and personal income taxation. The following types of the taxes are the obligatory payments:
- When buying or selling the real estate – 3% of the property value;
- Compulsory payments for social insurance – 6.5%.
Qatar is a country with unlimited reserves of natural gas. According to the indices of the Gross Domestic Product per capita, Qatar has become the world leader in these terms (more than 80 thousand US dollars).
The state fiscal system of Qatar excludes the following types of tax levies:
- Income taxation and taxes on the private property;
- Taxes on the capital gains, dividends and royalties.
The rate of the compulsory social payments for the private individuals is 5% and for the companies and enterprises – 10%. Imported products are liable to the 5% tax rate.
Kuwait is also included in the list of the leading countries in terms of the export of the oil and gas products. The state budget consists for the 95% of the oil sector of the economy. The norms of the fiscal law of Kuwait include the following obligatory social payments to the budget:
- For private individuals – 7.5% of the gained income;
- For employers of the legal entities – 11%.
The state budget revenues of Bahrain consist for the 70% of the funds from the oil sector. Enterprises and companies must pay 12% to the social insurance funds, for private individuals this rate amount 7%. All real estate transactions are subject to 3% tax.
Countries of the Persian Gulf: economic analysis and prospects
According to international rating agencies, countries of the Persian Gulf have taken strong positions in the list of the countries with liberal fiscal policy and relatively high economic indicators. For example, the United Arab Emirates and Qatar are among the ten leading countries along with Hong Kong.
It should be noted that the international analyses are implemented under the auspices of the world Bank. More than 180 countries were reviewed in the ranking, and the following factors underwent the thorough analysis:
- Indicators of the national economy;
- Legal framework and norms of the corporate law;
- Administrative requirements and conditions for carrying out the entrepreneurial activity.
In fact, the analysis represents the annual information report which reflects such aspects as the country fiscal policy, opportunities for reducing the tax level, business expenditures, tax rates, and also initiatives for mitigation of the tax regime and reforming the fiscal legislation.
Such achievements in the international rating are the clear indicators for the international business community. Entrepreneurs and businessmen understand that it says about the unlimited possibilities for business. The jurisdiction of the countries of the Persian Gulf, and in particular the UAE, is designed in order to attract more foreign investment into the national economy by creating a favorable investment climate.
The analysis says that the United Arab Emirates and the neighboring countries of the Persian Gulf provide the international business with the lowest tax rates in the world. Such an approach stimulates the inflow of the qualified manpower from all over the world into the region, and attracts a stable flow of the direct foreign investments.
Taxation of the European states
For clarity of the existing advantages of the UAE, the information on taxation in the European countries can be provided.
Sweden leads the list of the European countries which apply the highest rate of income taxation, here it totals 56.4%. According to international experts, such a fiscal policy was caused by an outflow of the skilled manpower out of the country. Second and third places went to Belgium and the Netherlands, respectively 53,7% and 52%. The UK, Austria and Denmark have shown the mark around 50-51%.
The lower positions hold the countries of the former socialist camp, in particular, Russia - 13%, Belarus-12%, and Bulgaria - 10%.
Against this background, we recall once again: the tax rate for business in the UAE – 0%.
Thus, even for a person, who does not possess any specific knowledge in the field of tax and fiscal legislation, the competitive advantages and opportunities for setting business in the United Arab Emirates become clear. And considering the fact that alongside with the business, incomes of private individuals are also exempted from taxation, such an attractiveness of the United Arab Emirates for highly qualified specialists and businessmen from all over the world becomes clear as well.