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Over the past three decades, certain small states and city-states have grown enormously, partly through their status as tax-friendly destinations people and companies. This in turn has encouraged many people to move to these less tax intensive destinations: with work, as retirees or under another arrangement.

The most famous of these states are undoubtedly the Gulf Cooperation Council states, most notably the United Arab Emirates (UAE). There are also other more mature economies that offer extremely low rates of income and sales tax. We’ll look at three of these and very briefly examine what the future holds for them.

  1. UAE

The UAE has moved away from being primarily funded by oil exports, to a diversified economy that has attracted massive Foreign Direct Investment (FDI), with a developed services sector.

Personal income tax:

As of September 2018, any income below AED 1,000,000 (US$ 275,000) is untaxed, meaning the highest earning professionals and independently wealthy businessmen pay tax. After the AED 1,000,000 threshold, a progressive taxation system kicks in up to AED 5,000,000. Any income above this threshold is taxed at 55%.  

Sales tax:

In 2018, the UAE introduced a 5% sales tax, the first of its kind throughout the Emirates. Despite this, the UAE remains one of the most tax-friendly countries in the world.

  1. Singapore

Singapore is one of the wealthiest city-states in the world, with capital-intensive manufacturing and software industries alongside one of the world’s busiest ports. It has long been a popular destination for expats and has a highly competitive tax system.

Personal income tax:

Singapore has a progressive income tax system that ranges from 0% for anything below SGD 20,000 (roughly US$ 15,000) to 22% for anything over SGD 320,000 (roughly US$ 230,000). This is higher than most Gulf states, but Singapore depends less on FDI, and has excellent government/public services.  

Sales tax:

Singapore has a General Sales Tax (GST) of 7%.

  1. Hong Kong

Hong Kong, a specially administered part of China, is one of the world’s most prosperous cities. While it’s not technically a city-state, in de facto terms it has a high-level of autonomy over domestic policy, including tax.

Personal income tax:

Income tax rates in Hong Kong have an upper limit of 17% for anything above a monthly income of HKD $ 120,001 (roughly US$ 15,000).

Sales tax:

Hong Kong levies no sales tax, except for some types of alcohol.  

The future:

Much has been written about whether both the Gulf and East Asia’s relatively low tax rates are sustainable. It’s true that over the past decade and a half, new taxes and tax rates have been introduced. For example, the UAE’s introduction of sales tax to help bolster public coffers, is one example.

While there is a general trend towards higher and more taxation in the destinations we’ve outlined, don’t confuse this a move towards European models of taxation. If the UAE and other Gulf states introduce new taxes, the scope will be limited; it’s unlikely they’ll hit individuals looking to move there like you. It’s also worth keeping in mind that both Singapore and the UAE have consistently posted large trade surpluses over the last few decades. This is something we’ll talk about in more detail in a future article, so keep your eyes peeled.

Want clear and in-depth advice about the financial implications of a relocation overseas? Get in touch with Crown Relocations today.

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