When looking at where to incorporate their businesses, owners often try to find jurisdictions that are business-friendly. When looking at how business-friendly a particular jurisdiction is, it’s common to look at the “total tax” rate. This is defined by the World Bank as follows:
The total amount of taxes is the sum of five different types of taxes and contributions payable after accounting for deductions and exemptions: profit or corporate income tax, social contributions and labor taxes paid by the employer, property taxes, turnover taxes, and other small taxes.
A low total tax rate ensures that a business is effectively able to minimize its tax liability. So, which countries have the lowest total tax rate? Let’s take a look.
- Former Yugoslav Republic of Macedonia: This is one of the only countries with a tax rate of less than 10 percent on its businesses. However, public debt in the country has doubled since 2008 — partly because of the country’s choice to keep its business tax rate so low.
- Qatar: Countries in the gulf are known for their oil wealth and low tax rates, which make them lucrative places to do business. Qatar comes in second place in our list, with a total tax rate of 11.3 percent. However, it is trailed by several other gulf states.
- Kuwait: Kuwait is just behind Qatar, with a total tax rate of 12.8 percent per World Bank calculations. However, the country is currently facing a fiscal deficit and could very well hike its taxes in order to compensate.
- Bahrain: Bahrain has less oil than Qatar and Kuwait. However, in some senses, it has a more favorable tax regime, as there are no taxes on income, capital gains, sales, estates, interest, dividends, royalties, or fees. Concerning the total tax rate, the country comes in fourth on our list with a rate of 13.5 percent.
- Lesotho: This tiny Africa country is one of the poorest on the continent, but it also has the lowest total tax rate on the continent, at 13.6 percent. This makes the country an anomaly, as the continent as a whole averages a total tax rate over 20 percent.
There is an important caveat here: Although a low tax rate is certainly an advantage when it comes to where to incorporate a business, it isn’t the only thing that matters. You will also want to consider factors like privacy and residency requirements. If you’re having trouble deciding where to incorporate your business, your best bet is to consult a professional.