Countries and States With the Best Tax Rates

Countries and States With the Best Tax Rates
Updated on April 9, 2024

In today’s globally connected world, individuals and entrepreneurs seeking to optimize their taxes are considering relocation as a strategy. This guide analyzes various tax rates and policies worldwide, highlighting locations with the most and least favorable tax treatment.

Our analysis shows how different jurisdictions cater to the financial interests of anyone looking to reduce tax liabilities. We compare individual income tax, value-added tax (VAT), capital gains tax, inheritance tax, and corporate tax rates to identify attractive tax environments. This overview can help potential expatriates make informed decisions, focusing on countries with low or no personal income tax, business incentives, or special tax considerations.

What Is a Tax Haven?

A tax haven refers to a country or territory where certain taxes are levied at a low rate or not at all to attract foreign individuals and businesses to invest in that jurisdiction. These regions often offer financial secrecy and minimal regulatory oversight, making them attractive for those looking to reduce their tax liabilities.

From the perspective of taxpayers in America and elsewhere, tax havens can significantly impact income tax obligations and the ability to capitalize on exemptions and lower capital gains taxes. However, the use of tax havens raises important ethical and political considerations. The debate centers around fairness and the responsibility of individuals and corporations to contribute to the public finances of their home countries.

For corporations, the appeal of tax havens often lies in the ability to benefit from low corporate income tax rates and favorable rules regarding dividends and capital gains. This can significantly reduce their effective corporate tax rate, increasing profits and shareholder value. However, this practice has led to increased scrutiny and calls for reform, as countries with higher tax rates find themselves at a disadvantage, affecting their Gross Domestic Product (GDP) and ability to fund public services.

In recent years, there has been a global push towards greater transparency and implementing measures to curb the use of tax havens for tax avoidance. For example, the Organisation for Economic Co-operation and Development (OECD) has been at the forefront of efforts to establish a global minimum corporate tax rate, which aims to reduce the incentive for corporations to shift profits to low-tax jurisdictions.

Global tax policy trends have changed significantly since the early decades of the 21st century, reflecting changes in the world economy, technological advancements, and growing concerns about environmental sustainability. These trends are reshaping the landscape of taxation worldwide, influencing how countries structure their tax systems and how taxpayers—both individuals and corporations—manage their tax liabilities.

One of the most notable trends is the move toward digital taxation. With the rise of the digital economy, countries are grappling with how to tax profits generated by digital giants that often have little to no physical presence in the markets where they operate. This has led to discussions at both the national and international levels, with the OECD playing a key role in trying to establish a cohesive approach to taxing digital services. The goal is to ensure that companies pay their fair share of taxes where their economic activities occur, regardless of their physical location. This shift toward digital taxation aims to address the challenges posed by the digitalization of the economy and ensure a fair distribution of tax revenues among countries.

Environmental taxes are another emerging trend, reflecting the global push toward sustainability and the need to combat climate change. These taxes encourage environmentally friendly practices by taxing pollution, carbon emissions, and the use of non-renewable resources. By incorporating environmental considerations into the tax system, countries aim to incentivize individuals and corporations to adopt greener practices. This approach not only helps in the fight against climate change but also opens up new avenues for tax revenues that can be used to fund environmental initiatives.

Furthermore, there’s a growing emphasis on tax fairness and the need to combat tax avoidance and evasion. This includes efforts to close loopholes in the tax system, enhance international cooperation to combat tax evasion, and ensure that both high- and low-tax jurisdictions can participate fairly in the global economy.

These global tax policy trends reflect a complex interplay between economic, technological, and environmental factors. They underscore the need for countries to adapt their tax systems to meet the challenges and opportunities of the 21st century while ensuring that the tax system remains fair, efficient, and capable of supporting public services and economic growth. As these trends evolve, taxpayers and policymakers must stay informed and agile, ready to navigate evolving global taxation.

Countries With the Best Tax Rates

Countries around the world adopt varying approaches to taxation, influencing economic decisions, investment locations, and the overall financial well-being of their citizens. In our exploration of the nations boasting the most favorable tax rates, we’ve considered several key metrics, including:

  • Personal income tax rates
  • Value-added tax (VAT) rates
  • Capital gains tax rates
  • Inheritance tax rates
  • Corporate tax rates.

Each of these metrics is a critical indicator of a country’s tax environment, affecting everything from daily living costs to the attractiveness of a jurisdiction for international investment.

Graph of countries and territories with the best tax rates.

Overall, Bermuda, the Cayman Islands, Kuwait, the United Arab Emirates, Macau, Oman, Qatar, Hong Kong, Greenland, and Timor-Leste are globally recognized for offering some of the most advantageous tax rates, positioning them as prime destinations for individuals and businesses in pursuit of tax efficiency. For those evaluating the best global locales for tax advantages, these jurisdictions represent the pinnacle of tax competitiveness, blending financial benefits with opportunities for economic prosperity.

Scroll through the table below to see how rates change among various countries, from Australia to the British Isles to nations in Africa and Asia.

Countries With the Best Personal Income Tax Rates

Several countries stand out in the quest for favorable personal income tax rates due to their zero income tax policy. Bahrain, Bermuda, the Cayman Islands, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) offer what many would consider the “best” personal income tax rates: none at all. This unique feature makes them attractive destinations for expatriates and high-net-worth individuals seeking to minimize tax liabilities. However, it’s important to understand the nuances and anomalies within these tax systems that compensate for the lack of personal income tax.

For example, Bermuda and the Cayman Islands do not levy personal income taxes but instead generate revenue through customs duties, stamp duties, and licensing fees. In the Cayman Islands, there’s also a heavy reliance on indirect taxes, including fees related to financial transactions and tourism-related activities. This approach allows these territories to maintain high-quality public services without a personal income tax.

In the Middle East, countries like Kuwait, the United Arab Emirates, Oman, Qatar, Saudi Arabia, and Bahrain benefit from vast oil and natural gas reserves, which provide significant revenue streams that reduce the need for personal income taxes. These countries tend to have high GDPs and invest heavily in public infrastructure, healthcare, and education, supported largely by their petroleum and natural gas industries.

Countries With the Best Value-Added Tax Rates

Value-added tax (VAT) is a consumption tax placed on a product whenever value is added during production and retail sales. The rate of VAT can greatly impact consumers and businesses, influencing the overall cost of goods and services. Several countries and territories, including Bermuda, the Cayman Islands, Greenland, Guernsey, Kuwait, Qatar, and the United States, stand out for their approach to VAT: they have none.

Hong Kong and Macau also do not have VAT, reflecting their unique administrative structures. Additionally, Macau benefits from its booming gambling and tourism sectors. Guernsey opts out of VAT in favor of direct taxes and duties that cater to its economic environment. The United States represents a distinct approach among large economies by not adopting a federal VAT system. Instead, it uses a state and locally determined sales tax framework, creating diverse tax obligations nationwide.

Other economic factors and tax structures often balance the decision to forgo VAT in these jurisdictions. While this policy may reduce the immediate tax burden on consumers and businesses, it’s part of a broader fiscal strategy that includes various forms of revenue generation tailored to each country’s specific needs and economic context.

Countries With the Best Capital Gains Tax Rates

Capital gains tax, a levy on the profit from the sale of property or an investment, varies significantly across the globe. Some countries have positioned themselves as particularly favorable to investors by not imposing individual capital gains tax, making them attractive destinations for capital investment. Others have a more nuanced approach, with policies that vary depending on the specific nature of the capital gain or by region within the country.

A notable list of countries and territories stand out for not levying any individual capital gains tax, including Bahrain, Barbados, Belgium, Bermuda, Bolivia, Cayman Islands, Democratic Republic of the Congo, Eswatini, Greenland, Guernsey, Hong Kong, Isle of Man, Jersey, Kuwait, Macau, Mauritius, Namibia, Netherlands, Oman, Papua New Guinea, Qatar, Saint Lucia, Saudi Arabia, Singapore, Trinidad and Tobago, United Arab Emirates, and Zambia. This policy enhances their appeal to investors by allowing them to retain more profits from investments.

In contrast, some countries have more complex frameworks for capital gains taxation, with policies that may vary widely depending on the type of capital gain or the specific region within the country. This group includes Mongolia, Vietnam, Puerto Rico, the Philippines, New Zealand, Mexico, Pakistan, Malta, Tunisia, the United Kingdom, Portugal, Taiwan, Panama, and Switzerland. In these jurisdictions, the approach to capital gains tax is often nuanced, reflecting a balance between encouraging investment and ensuring tax fairness.

For example, while there is a capital gains tax in the United Kingdom, the rates and exemptions depend on the asset type and the taxpayer’s income level. And while there’s traditionally been no capital gains tax in New Zealand on most personal property sales, recent years have seen discussions and changes to address housing market concerns.

This variability underscores the importance of understanding each jurisdiction’s specific tax laws and regulations, especially for investors and taxpayers who engage in cross-border activities.

Countries With the Best Inheritance Tax Rates

Inheritance tax is often a point of significant interest for individuals planning their estate. While many countries do not impose any inheritance tax, which presents an attractive proposition for wealth preservation upon transfer to heirs, there are nations where the inheritance tax rates are quite steep, impacting the amount that beneficiaries receive.

Many countries do not levy any inheritance tax, aligning with policies favoring the seamless asset transfer between generations. This approach simplifies estate planning and encourages wealth accumulation within families over time.

On the other hand, some countries have implemented high maximum inheritance tax rates, which can significantly impact the amount that heirs receive. The countries with the highest rates include:

  • France has an inheritance tax that can go up to 60%, depending on the relationship between the deceased and the heir; closer relatives typically face lower rates, but distant relatives and non-relatives can be subject to the highest rates.
  • Japan stands out with rates up to 55%. Its progressive tax system means that larger estates are subject to higher rates, reflecting the government’s approach to wealth distribution and social equity.
  • South Korea and Germany both have a maximum rate of 50%. In South Korea, the high rate is part of a comprehensive tax system designed to reduce wealth inequality. However, the country is discussing raising the maximum rate to 60%. Meanwhile, in Germany, the rate varies based on the relationship to the deceased and the value of the inheritance.

These high maximum rates reflect a policy choice to tax wealth transfers to generate revenue and, in some cases, as a tool for addressing wealth inequality. However, the impact of these rates varies depending on specific exemptions, deductions, and the relationship between the deceased and the beneficiaries. For example, spouses and direct descendants often benefit from lower rates and higher exemptions, reducing the effective tax burden.

Countries With the Best Corporate Income Tax Rates

Corporate income tax rates are critical for businesses when deciding where to establish operations or invest. Lower tax rates can enhance a company’s profitability and competitiveness. Some countries have positioned themselves as highly attractive business destinations through low or zero corporate income tax rates.

Bermuda and the Cayman Islands are the only countries offering a 0% corporate income tax rate, making them exceptionally attractive to businesses seeking to minimize their tax liabilities.

Barbados offers a competitive corporate income tax rate that has been recently raised to 9%, with some small businesses still allowed to operate at the previous 5.5% rate. This low rate is part of Barbados’s strategy to attract foreign businesses and investment.

Hungary also stands out in the European Union with a corporate income tax rate of 9%, one of the lowest in Europe. This rate is part of Hungary’s efforts to stimulate economic growth and attract foreign investment. The low corporate tax rate is coupled with a relatively simple tax system, although companies must navigate other high taxes, including value-added tax (VAT) and local business taxes.

How Do Other Tax Systems Compare to the United States?

When comparing the American tax system to those of other countries, differences and similarities come to light, illustrating the diverse approaches to taxation and government funding around the world. The US tax system is complex, combining federal, state, and local taxes, all of which can include income, sales, property, and corporate taxes. 

Regarding personal income tax, the US employs a progressive tax system, where the tax rate increases with income, ranging from 10% to 37% at the federal level. This approach is similar to many countries, such as Germany and the United Kingdom, which also use progressive taxation. However, there are nations like the United Arab Emirates and Bermuda that do not levy personal income tax at all, offering a stark contrast to the American model.

Corporate taxation in the US underwent significant changes with the Tax Cuts and Jobs Act of 2017, which reduced the federal corporate income tax rate from 35% to 21%. This adjustment made the US more competitive than many other industrialized nations, though countries like the United Arab Emirates and Hungary offer even lower rates to attract international businesses. On the extreme end, jurisdictions such as Bermuda and the Cayman Islands impose no corporate income tax, making them highly attractive for corporate tax planning.

A distinctive feature of the US tax system is its reliance on state-level sales taxes instead of a federal value-added tax (VAT), common in over 160 countries, including those in the European Union. VAT rates abroad typically range from 5% to 25%, and this system is praised for its efficiency in raising government revenue without discouraging savings or investment.

Funding mechanisms for social security and healthcare also vary significantly. In the US, these are funded through payroll taxes paid by both employers and employees, contributing to Social Security and Medicare. In contrast, countries with universal healthcare systems, such as Canada and the United Kingdom, may fund these services through general taxation, which can lead to higher income tax rates but eliminate direct healthcare costs for individuals.

Lastly, the administrative aspect of tax compliance reveals further differences. The US is known for its complex tax code, often necessitating professional assistance before taxpayers can file with the IRS. Meanwhile, some countries offer more streamlined processes, like pre-filled tax returns in Germany and Japan, which simplify the filing process for taxpayers.

Overall, the American tax system reflects a blend of policies and priorities, balancing between revenue generation for government services and the economic burden on individuals and businesses. Comparisons with other countries highlight the variety of ways in which governments can structure their tax systems to meet their fiscal and social objectives, each with its own trade-offs and benefits.

States With the Best Tax Rates

Given how state tax systems and real estate costs vary within the US, geographic location can significantly affect residents and businesses. This next analysis zeroes in on several key metrics that define the tax climate of a state: personal income tax rates, state sales tax, average local sales tax, capital gains tax rates, inheritance tax rates, and corporate tax rates. Each of these factors helps shape the economic and financial environment of a state, influencing decisions ranging from individual spending habits to business investment and location strategies.

Table of the US states with the best tax rates

Wyoming, South Dakota, Alaska, New Hampshire, Texas, Nevada, Florida, Montana, Delaware, and Ohio stand out in the United States for their favorable tax rates, making them attractive destinations for both individuals and businesses seeking tax efficiency. These states have implemented tax policies that significantly reduce the financial burden on residents and companies, reflecting a strategic approach to fostering economic growth and enhancing quality of life. Check the table below to find where your state ranks.

Some states have decided not to implement personal income tax. This absence of state income tax is a significant draw for individuals seeking to maximize their income’s potential. However, the lack of personal income tax in these states is often balanced with other forms of revenue generation, such as higher sales or property taxes.

Alaska, Delaware, Montana, New Hampshire, and Oregon stand out for their approach to sales tax, with neither state imposing one. Ohio offers a unique tax advantage through its relatively low personal income tax rates and tax credits for businesses, fostering an environment conducive to growth and investment. 

These states demonstrate a strategic use of tax policies to create competitive advantages that attract residents, investors, and businesses. By minimizing tax liabilities across various categories, including personal income, sales, capital gains, inheritance, and corporate taxes, they enhance their attractiveness and contribute to economies that support innovation, investment, and sustainable growth.

Conclusion

Our examination of global and US tax environments shows that strategic relocation can significantly enhance tax benefits for individuals and entrepreneurs. We’ve identified jurisdictions with competitive tax advantages, such as lower income tax rates, tax-free income options, and favorable conditions for personal and corporate growth. From countries with no personal income tax to US states with attractive business tax incentives and affordable real estate, the potential for financial optimization through relocation is clear.

Those considering a move should carefully assess the rates and policies of potential destinations. The right choice can lead to substantial tax savings, wealth accumulation, and improved tax competitiveness. This knowledge can help potential movers make informed decisions, leveraging tax benefits across different jurisdictions to achieve their financial goals and thrive in the global economy.

Methodology

For our country and territory rankings, we used PwC’s tax summaries to find the rates for personal income tax, value-added tax, capital gains tax, inheritance tax, and corporate tax for 144 countries. For US state-level data, we used information from the Tax Foundation’s pages on income tax, sales tax, inheritance tax, and corporate tax. Finally, we gathered state capital gains tax rates from Realized. Tax rates and policies are constantly changing; this data was updated in February 2024.

About Greenback Expat Tax Services

Greenback Expat Tax Services provides expert tax solutions for Americans living abroad. We offer a variety of services, from aiding in filing your tax returns to helping you create a tax strategy for you and your family.

Fair Use Statement

Is someone you know looking to move abroad? Feel free to send them this information; we just ask that you do so for noncommercial purposes and link back to this page.

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.