Dateline: Kuala Lumpur, Malaysia
I read a recent headline here that suggested that while some Malaysians are concerned about the country’s ongoing lowering of tax rates on individuals and businesses, most (not all, of course) realize it is a way to bring more business to an increasingly competitive Asian economy.
Other countries, of course, are not so interested in reducing taxes, whether it is good for the country or not. Later this month, Swiss voters will head to the polls to vote on a referendum that would end the “forfait” tax: essentially a negotiated flat-tax based on living expenses, not on income, of those who live but don’t work in Switzerland. The Swiss cantons of Vaud, Valais, Geneva, and Ticino all allow French and other foreigners to live there and enjoy a low tax bill under the premise that the presence of more wealthy people creates economic benefits besides tax.
Considering the downfall of Switzerland, it was only a matter of time before someone was bound to make it a big issue. Meanwhile, politicians in the Land of the Free are so upset that tax rates aren’t low enough that they are actually trying to stop US companies from moving their operations overseas. Politicians like Chuck Schumer have gotten so butthurt over both individuals like Eduardo Saverin and companies deciding US tax rates were too high and going elsewhere. We always discuss how the countries that think they are entitled to continually extort more money out of you are the countries whose long-term fate is not good. It doesn’t matter whether politicians wish it was still 1812 and there were no opportunities in the global economy. The truth is companies can and should go where they are treated best. The United States, for instance, has the highest corporate tax rate in the world. It doesn’t matter that some companies use a network of Double Irish Dutch Sandwiches to park their capital overseas. Not only have the US and the EU successfully shut down a number of tax shelters including the Double Irish, but those shelters are largely unavailable to millions of companies that don’t control intellectual property or have global operations. Rather than encouraging new businesses to set up shop in the United States, US politicians are too busy demonizing Apple and turning the public against “big business”. They practice a defensive, not an offensive strategy, and are much more concerned with saddling their tax slaves – US companies they figure can’t leave – rather than attracting new business that would generate revenues. So I did a little research and found 39 countries that have lowered their tax rates on business in order to attract more investment. All in just the last few years. The list includes countries one might derisively label as “communist”, “socialist”, “backward”, or “run by warlords”. They all have one thing in common…
1. Belarus. The last remaining bastion of sympathy for the old Soviet Union, even capital controlling Belarus has reduced taxes from 24% to 18%.
2. Botswana. One of the most developed and promising economies in Africa recently reduced taxes from 25% to 22%.
3. Brazil. Brazil has its fair share of problems, no doubt, but the country reduced its headline corporate tax rate from 34% to 25% this year.
4. Canada. While corporate tax rates increased by a fraction of a percent this year, the country has overseen five drops in its corporate tax rate in the last decade as the country becomes more open for business than The Land of the Free to the south.
5. Colombia. The second freest economy in South America has similarly reduced taxes several times over the last decade, going from 33% to 25% two years ago. Colombia remains, in my opinion, one of the world’s underrated gems for investment and low cost of living.
6. Czech Republic. A favorite of the start-up scene in Europe, the Czech government reduced taxes to their low rate (by EU standards) of 19% several years ago.
7. Denmark. Perhaps the most socialist and most politically correct country on earth, Denmark may be an extremely expensive place to live (think $15 for a small beer) but tax rates continue to decline, down this year to 24.5%.
8. Ecuador. The South American country lowered corporate taxes by 1% a year until reaching the current rate of 22%.
9. Estonia. Estonia’s tax rate declining to its current 21% rate several years ago. However, Estonia has the unique benefit of only taxing distributions, allowing company owners to accumulate business capital tax-free until they take money out of the company.
10. Fiji. Corporate taxes have gone from 31% to 20% in this island nation, which remains a favorite of some frontier market investors.
11. Germany. Leave it to the Germans to churn out tax rates as complicated as 38.34% and 29.58%, but that is the starting and ending rate for corporate income over the last decade.
12. Gibraltar. While this rock at the southern tip of Spain remains a tax-free jurisdiction for international business companies, companies doing business in Gibraltar have seen their tax bill slashed from 35% to an amazing 10%.
13. Guatemala. While part of Guatemala deserves its bad rap, cities such as Antigua are unfairly targeted. Tax rates are down 3% to 28% as of this year.
14. Honduras. In addition to nascent special economic zones, Honduras lowered tax rates to a mediocre 30% this year, down from 35%.
15. Hong Kong. One of my favorite places to set up a legitimate “offshore” company, Hong Kong companies now benefit from a slight reduction in taxes down to 16.5%. Of course, companies that don’t have any actual business in Hong Kong can pay zero tax thanks to the country’s territorial tax policy.
16. Indonesia. This southeast Asian country may have a disastrous currency, but it remains an emerging real estate hub for some frontier investors, and benefits from recently lowered tax rates, now down to 25%.
17. Jamaica. Call the place a mess propped up only by tourism; the Jamaican government lowered corporate rates from 33.33% to 25%.
18. Japan. One of the world’s most indebted, easy money nations, Japan lowered tax rates to 35.64% after spending years at the top of the charts.
19. Jordan. The Middle Eastern nation nearly halved its tax rate from 25% to a low 14%. Seems fitting considering Dubai is a zero-tax jurisdiction and is the world’s easiest country to pay taxes for those that do owe a little something.
20. Kuwait. Not that long ago, the tiny Middle Eastern nation lowered taxes from 55% to an astonishing 15%.
21. Libya. While paying taxes probably isn’t the top priority in Tripoli these days, the country did half their corporate tax rate a few years back. 22. Macedonia. This small nation is one of a few breakaway states from the old Yugoslavia competing to lower taxes. Macedonia tax rates are down to a low, flat 10% rate.
23. Malaysia. I’m a big fan of Malaysia, and while the country isn’t a tax haven for local businesses, they are continuing to reduce corporate tax rates a little bit at a time. The rate is currently 25% and set to decrease again. Malaysia is also home to Labuan, one of the world’s least known tax havens that comes with all the benefits of Malaysia.
24. Netherlands. Rates in this high-tax European country are down a few points, where they now stand around 25%.
25. Norway. The very socially conscious, “for the greater good” Scandinavian country lowered tax rates one point to 27% this year.
26. Panama. Anyone with no business in Panama can set up an offshore company in Panama and avail themselves of zero tax. For those doing local business on the ground, tax rates are down 5% to 25%.
27. Portugal. Portugal hasn’t just created one of the best immigrant investor programs. The PIIGS country held off on reducing tax rates, but came through and lowered corporate taxes to 23% this year, down almost 5% over the last decade.
28. Russia. In addition to a low flat 13% personal income tax rate, “evil Russia” has reduced its corporate rate to 20%.
29. Singapore. A popular onshore/offshore jurisdiction, Singapore has lowered its headline tax rate from 20% down to 17% in recent years. For those who run a small business with six-figure revenues, tax exemptions and write-offs can get that rate darn close to zero.
30. Slovenia. Nestled next to Italy, this European Union member has systematically reduced taxes from 25% to Singapore’s headline level of 17%.
31. South Africa. One of the world’s largest gold producers has its fair share of issues, but tax rates are down from levels that once rivaled the United States to a mediocre 28%.
32. Sri Lanka. The South Asian country lowered its corporate rate from 35% to 28%.
33. Sweden. Think Sweden is a bastion of ubersocialism? They may love to celebrate big government, but their tax rates are down to 22% – almost half the level that US corporations pay at the highest level.
34. Switzerland. While rates are partially determined by the local cantons, Swiss tax rates are down to below 18%.
35. Syria. It may be on every watch list, but the Syrians saw fit to lower taxes from 28% to 22%.
36. Ukraine. Rates in the troubled country have dropped from 25% to 21% to 19% to their current level of 18% this year.
37. United Kingdom. While the UK may be experiencing a dramatic decline in personal freedom as privacy-invading cameras now seem to dot every square inch of the place, but London did manage to usher in five tax decreases in the last decade, with the top rate now sitting at a mere 21%.
38. Vietnam. The socialist republic has dropped corporate tax rates from 28% to 22% in recent years.
39. Yemen. Tax rates in this Arab nation have dropped from 35% to only 20%. Add that to the list of countries where taxes were never that high to start with, including some surprises like Hungary, and you’ve got a real recipe for success by doing business overseas.