Offshore

Qatar Tops Global List For Low-Tax Places

Shirin Aguiar, Reporter, London, 10 February 2022

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The report, which sought to determine the countries with the best tax regimes for individuals, differentiates between personal and corporate tax havens.

Qatar is the best country in which to reside for individuals wishing to pay less tax and enjoy the overall best score for living costs, an analysis of 20 international financial centres has found.

With an average monthly income of £3,128.42 ($4,246.83), coupled with a maximum 10 per cent payable on personal income tax and capital gain, and average monthly living costs for a single person of £637.16, excluding rent, the Gulf state is the “perfect place to live,” according to researchers at Merchant Machine, who gave the country the highest overall score for its tax regime at 9.16.

This compares with the UK’s score of 6.59, thanks to an income tax rate of 45 per cent on top earners, social security tax at 12 per cent, and capital gains tax at 28 per cent. Inheritance, estate and gift taxes are 40 per cent, along with property tax at 20 per cent. The UK is on track to have the highest overall tax burden for more than 70 years – a fact that partly explains the plummeting fortunes of prime minister Boris Johnson.

The Cayman Islands, a British Overseas Terrirory, are in second place. Unlike Qatar, residents pay no personal tax, although average monthly income is slightly lower and the cost of living significantly higher, meaning that day-to-day living costs are higher. The report scored the Cayman Islands at 9.10, taking into account the average monthly salary of £2,816.68, and the cost of living for a single person at £1,092.87 per month, excluding rent.

The British Virgin Islands are third on the list with an overall score of 9.02. The average monthly salary there is £1,328 and the cost of living per month £622.11. Social security tax stands at 4 per cent, and property tax at 1.5 per cent. Although this is more than Qatar and the Cayman Islands, it is "still quite lower than other countries such as the Netherlands, where personal income taxes stand at 10 per cent and 49.5 per cent," according to the study.

Researchers selected the top 12 countries from the Corporate Tax Haven Index 2021 and added eight more countries that are considered individual tax havens. They ranked all 20 countries across nine categories, then found the average across all the categories to create an overall score.

There is obviously more to scoring IFCs than just assessing living costs and taxes, because ease of doing business, regulatory and political stability, low crime, rapid transport links, good education and healthcare, social amenities and quality of life also enter into the mix when people select such places. The past two years have seen some jurisdictions, such as Hong Kong, adopt tough "zero-COVID" policies which arguably contrast with liberal approaches such as those of Dubai and Switzerland.  

Individual versus corporate tax havens
“There is an open and active discussion about which countries can be considered a tax haven. Most of the countries at the bottom of the list of Merchant Machine’s research are in a grey area, being considered proper tax havens by some and corporate tax havens only by others, due to their advantageous corporate tax regime. But does the situation change when we consider individuals instead of corporations?” the study said. The answer to that is, it does. With regard to low taxes, the Netherlands is the most unfavourable country to reside in. “For many years, this country has been considered one of the tax havens of Europe for providing favourable environments for taxation on capital gains, income, and corporations,” the report said. 

The average Dutch monthly salary is £4,115.61, placing it in the middle of all average salaries analysed, comparing with Switzerland’s highest monthly salary of £8,087.56, and Bermuda’s, the lowest, at £1,154.14. However, Dutch residents pay between 9.45 per cent and 49.5 per cent in personal income taxes and 27.65 per cent in social security contributions, depending on their level of income. For comparison, this is 9.5 per cent more than Ireland and 4.5 per cent more than the UK’s highest level of income tax. 

In Ireland, the minimum income tax is 20 per cent of earnings; this is the same as in Jersey, the largest and southernmost of the Channel Islands. These two countries are the worst for this category, the study noted.

The majority of countries start at 0 per cent for the minimum income tax category. The UK, which has different tax bands and operates a pay-as-you-earn system, levies 0 per cent income tax on income below £12,570, 20 per cent between income of £12,571 to £50,270, 40 per cent between £50,271 to £150,000, and 45 per cent on income of more than £150,000. This makes the UK’s maximum personal income tax 45 per cent.

A push last year by the Group of 20 major industrialised nations, led by the US, to impose a minimum 15 per cent corporation tax rate meant that some nations, such as Ireland, would need to increase their corporate rates. Such measures arguably push against what has been called "tax competition." Defenders of the G20 move say that unfettered competition over tax rates produces a "race to the bottom."

Other tax considerations 
Other tax considerations when deciding whether to relocate include capital gains tax, inheritance tax, estate, and gift taxes. Capital gains is payable on the profit (amount actually gained) on selling or disposing an asset that has increased in value, rather than the entire amount received. Merchant Machine’s research found that Ireland levies between 33 per cent to 40 per cent for capital gains tax, making it the most expensive place for that type of tax. In Cyprus, it is 20 per cent, while in the UK it ranges from 10 per cent to 28 per cent.

In 13 of the 20 countries which Merchant Machine analysed, inheritance tax, payable on the estate of a deceased person, does not exist. However, for the other eight, it ranges from 5 per cent to 55 per cent, with Switzerland having the highest percentage. 

In Switzerland, the tax varies depending on the value of the assets and the relationship of the heir with the deceased.

In the UK the standard rate of inheritance tax is 40 per cent. However, it is not payable if the value of an estate falls below the £325,000 threshold or if the testator leaves everything above the £325,000 threshold to their spouse, civil partner, a charity, or a community amateur sports club.

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