Dateline: Los Angeles, California
The free market is a fascinating thing. Yet it is remarkably simple: it is really just an acknowledgment of human nature.
California is a perfect example of that. Countless businesses here have packed their bags and moved over a stripe on the map to places like Arizona, Nevada, Utah, and Texas.
Yet California doesn’t seem to care. They don’t even flinch.
So arrogant is California to think that it can overcome the free market by simply adding one more rule or regulation to make it nearly impossible to do business. Once you are doing business here, you’ll wish you weren’t.
That’s why I’ve called this once prosperous, now bankrupt, state the world’s worst place to do business. If you’re already in business here, I seriously suggest getting the heck out before things get even worse.
And I’m not the only one.
As Frank Sinatra once crooned, if you can make it here, you can make it anywhere. Cut your losses and get out for greener pastures.
While waiting at the amazingly dated dump that is Los Angeles International Airport, I started chatting up a gate agent for one of the US airlines.
The lady, likely in her late fifties, told me the story of how she moved to the United States from Hong Kong twenty-five years ago, concerned about the British handover over her homeland and seeking new opportunities in The Land of the Free.
As with many of the US immigrants I speak with, she regrets the decision, noting the things we talk about here: fewer freedoms, a dismal economy, and a sense of hopelessness. Meanwhile, her native land is thriving.
Hong Kong has thrived – and has consistently been rated the world’s freest economy – because it makes things easy, particularly for the businesses that create tax revenues and bring in people from all over the world to employ.
While the USSA, with its third world wi-fi speeds at airports, is adding more and more regulations and beefing up the already complex tax code, countries around the world see the path to riches: making things simple.
If you’ve ever run a business, you know what I’m talking about. If you live in a “first world” country somewhere, chances are you’ve got a bunch of crumpled up receipts from the office supply store hidden away since 2005. Such is the cost of complying with a draconian tax system that spares no mercy.
I recently came across evidence of that in a study on the “simplest corporate tax regimes” in the world. A group of researchers got together and figured out which countries made it easy for businesses to file their taxes.
Of course, the United States wasn’t #1. Nowhere close.
Even more embarrassing, other increasingly totalitarian countries such as the United Kingdom and Australia offer far more simple tax regimes than the United States.
The easiest place to pay taxes in the world? The United Arab Emirates.
Of course, it doesn’t hurt that the UAE – home to city-states like Dubai and Abu Dhabi – has no income tax at all. Unless you’re pulling oil out of the ground, you don’t have to pay.
While some might point to some perceived “cultural clash” involving living in the Middle East, the numbers don’t lie when it comes to doing business there.
Other countries that are easy to do business in: Singapore, Hong Kong, and New Zealand.
In terms of tax compliance, the United States ranked 64th.
Running your business from an offshore corporation can make tax compliance much easier. Many offshore jurisdictions, such as Seychelles, do not impose reporting requirements or complex annual filings on the companies there. You simply pay an annual fee to keep the company in good standing.
When you realize that is part of how these small countries fund their small government, it makes the whole process seem like a real free market based on user fees.
More complicated offshore jurisdictions, such as Hong Kong and Singapore, do impose minimum standards that may seem like they make business tax compliance difficult, but it merely forces businesses to provide the records they should be keeping anyway. (And that US persons have to keep if the IRS ever asks for them.)
However, these countries use a territorial tax system, meaning profits derived outside the country are not subject to local tax. It is often prudent to pay a little bit of local tax – a few percentage points, for instance – to keep other governments off your back.
I, for one, would rather pay 5% to Singapore where my presence and my capital is relatively well respected than in a country that views it as my “patriotic duty” to pay whatever they demand.
And that is the inherent difference between countries where paying taxes is easy and countries where it is hard. I remember seeing a Christmas card some country sent out to taxpayers wishing them a happy holiday season a few years back. Nothing about owing money or paying your “fair share”.
It was simply a good, old fashioned Christmas card from a country that knew who was buttering its bread.
The United Arab Emirates doesn’t make paying taxes easy just because they want to be nice guys. They realize that is a big part of what is propelling their economy forward, bringing jobs to the country, and putting them on the map.
And there are plenty of countries without oil gushing out of the ground that are doing the same thing for the same reason.
You can complain that the countries doing things the right way don’t practice your religion or are the subject of propaganda in your country…
…or you can follow the numbers and increase your wealth.
As I always say, it comes down to culture. What is the local business culture and what is the government culture? A country that makes it easy to do business – even filing silly tax returns – is a country that wants you there, rather than a country that merely tolerates you living in their fiefdom.