Countries with lowest taxes part 2 – Part one is here.
Taxes from individuals and legal entities are levied in any state. Treasury receipts provide an opportunity for the implementation of various social programs that further affect the quality of life of the population. At the same time, personal income tax and VAT provide a significant share of receipts. However, there are countries in the world without income tax or those without VAT. We will tell you in detail below about these unique states and where they get funds from to finance health care, education, pensions, and other things.
Tax residency allows you to significantly optimize costs and thereby increase income. That is why many businessmen from countries with a large fiscal burden are looking for tax havens that can help maintain profits and increase wealth. To achieve the set objectives, it is not at all necessary to use distant jurisdictions. After all, the lowest taxes in Europe is a reality. There is no need to waste time on long flights if you can get residency much closer. Let’s take a look at which countries can provide the most beneficial tax residency in Europe.
What are tax havens?
Many countries get their money sources through taxation, no matter it is a local, state or federal level. It is the process of levying fees from individuals and corporations on money they earn to fund certain government projects and plans, such as infrastructure, education, government retirement plans, and healthcare. But there are countries that don’t fall into this category. These countries are called tax havens.
The term “tax haven” usually refers to countries that promise a stable political and economic environment.
This stability enables them to provide assistance to individuals and corporations with low tax liabilities, if any. These regions can be offshore, which means that they are located outside the country of residence of the legal entity. This is because these locations may not require you to be a resident or citizen to take advantage of their tax policies.
Despite what their name might mean, tax havens are not completely tax exempt. In fact, these countries make money from other sources. Read on to find out more about how these governments generate revenue from other types of taxes.
1. Customs and import duties
In jurisdictions with low income taxes, forgiven government revenues are usually complemented by the imposition of tariffs. These are taxes levied on various goods imported into the country. These fees are called customs and import duties.
These duties are indirect taxes. In some cases, the loss of revenue due to taxation results in higher tariffs. This often means a higher cost of living, as higher fees are applied to the price of goods before they are sold locally.
The Cayman Islands are one of the most popular tax havens in the world. It is home to about 100,000 companies, although its population is only about 65,000. Individuals do not pay capital gains tax, while corporations and hedge funds are exempt from income and income taxes. But expect to pay between 22% and 27% import duties on most goods. For example, a 2016 BBC documentary on the Cayman Islands showed viewers that high import duties from the island resulted in a pack of fish sticks retailing for up to $ 12.
Bermuda, that is also considered as one of the other tax havens, levies duties on items depending on the total value. The rate is usually 22.25%, although for most food items it can range from 5% to 15%. The people are being charged for 25% to the government if they arrive in the country with personal belongings by sea or air.
2. Corporate registration and renewal fees
Tax havens are not only attractive to individuals but also a good place to start a business for companies. Most offshore financial centers do not levy a corporate tax. In the contrary, their countries still benefit from the registration of companies in their jurisdiction. For example, about 400,000 companies call the British Virgin Islands their home, compared to the 32,000 people who live there.
Tax haven governments usually levy a registration fee on all newly registered commercial entities such as companies and partnerships. Companies are also required to pay an annual renewal fee in order to continue to be recognized as a going company. The cost of registering a company in the British Virgin Islands ranges from US $ 9,000 for an international commercial company to US $ 18,000 for a resident company.
Governments also levy additional fees on selected companies registered in the British Virgin Islands to continue operating on an annual basis. The additional fees are considered as renewal fees, that depends on the type of corporate business activity. For example, banks, mutual funds, and other financial services companies usually have to pay for an annual license to operate in the industry.
All of these fees add up to create a strong source of regular income for governments’ tax-havens. To demonstrate the power of this revenue stream, the BVI government is estimated to have collected over $ 200 million annually in corporate fees as of 2016.
3. Exit taxes
Many tax havens have a very dynamic travel and tourism industry, receiving hundreds of thousands – even millions – of visitors every year. This high level of tourism creates an additional source of income for some of these countries in the form of exit taxes.
Exit tax is a tax that is collected when you leave the country. This charge can also be called an airport tax, which is levied on anyone who arrives or passes through a specific airport. The money collected is used by the government for the construction, improvement, maintenance, and general management of airports.
Barbados is usually considered as another famous tax haven because it has a really low tax environment, specifically when we are talking about offshore companies located in the Caribbean. Travelers should be aware that anyone over two years of age must pay approximately $ 28 in exit tax when leaving the country. An additional $ 70 is required for people flying outside the Caribbean, while individuals are charged $ 35 if they fly within the region. These fees are usually added to air tickets as an additional tax.