Income tax is a concern for any working class individual or income generating business. Businesses consider the tax returns of any country before opening a branch there. International businesses and governments pay a lot of attention to business taxes for good reasons. Individuals would also be wise to look into the percentage of their income that is taxable before moving to the new country especially via work permits. Personal income tax is a good factor for such individuals. There are countries known as tax havens where the tax is zero while some countries tax as much as 60% of your income.
The ranking is calculated by the World Economic Forum (WEF). WEF publishes a global competitiveness report on the state of the world’s economies. It uses the total tax rate as a measure of how competitive a country is. The total tax rate is defined by the World Bank. It states that “the total amount of taxes is the sum of five different types taxes and contributions payable after accounting for deductions and exemptions: profit or corporate income tax, social contribution and labor taxes paid by the employer, property taxes, turnover taxes and other small taxes”. In essence, it accounts for taxes paid by the employer but not the employee.
According to the 2016 report, below are the top 10 countries with the lowest tax:
- Brunei: 8.7% — Brunei, one of the smallest countries in the WEF report with a population of about 0.4 million, is also one of the most competitive, coming in at 58th overall. The nation has its institutions, infrastructure and macroeconomic environment as the pillars of its economy.
- Qatar: 11.3% — Qatar, which comes in at 18th for overall competitiveness, manages to edge out the region’s other oil-rich states but still comes second to low taxes. It’s restrictive labor regulations are cited as the country’s most problematic factor.
- Macedonia: 12.9% — Former Yugoslav nation Macedonia has incredibly low tax rates. It comes in at 68th in overall competitiveness Policy instability and poor access to financing is responsible for losses in the overall rankings.
- Kuwait: 13% —At 38th position, Kuwait’s inefficient government bureaucracy is a major problem. The government rejected an IMF suggestion meant to help address its fiscal shortfall.
- Bahrain: 13.5% — another oil-rich nation struggling with uncertainty in the future of energy prices.
- Lesotho: 13.6% — One of the poorest nations in the world. The country battles corruption on many fronts. In spite of having the lowest taxes of any African country, lack of access to finances drops its competitiveness to 120th on the list.
- Saudi Arabia: 15% — Saudi Arabia announced an ambitious economic development plan which aims to reduce its dependence on oil by 2030 according to WEF. This is to be achieved by widespread diversification of its economy.
- United Arab Emirates: 15.9% —Technological adoption and business sophistication is helping UAE offset deteriorating macroeconomic stability and the effects of declining oil prices Despite its low rate and high ranking, the UAE comes only fifth in the Middle East region, showing how low taxes in that part of the world are.
- Georgia: 16.4% — Georgia embraced a low tax model after the fall of the Soviet Union, repeatedly slashing the number of taxes and their rates.
- Singapore: 18.4% — With such low tax rates, Singapore has become an important base of operations for companies looking to access the Asian market.
TAX HAVENS: These countries have 0% personal income tax. They are Bahamas, Brunei, Oman, Bahrain, Bermuda, Cayman Islands, Kuwait, Qatar, Saudi Arabia and UAE.
It is important to note that some countries, states and countries have taxes that are substantial but that are not included in calculating the total tax rate. It is essential to get comprehensive info from the appropriate government body for any country or state.