7 Countries with Lowest Corporate Tax Rates
1.
Hong Kong: 0% - 16.5%
2.
Singapore: 4% - 17%
3.
Switzerland: 11% - 21%
4.
British Virgin Islands: 0%
5.
Bahamas: 0% - 0.25%
6.
Hungary: 9%
7.
United Arab Emirates: 0% - 9%
What Is Corporate Tax?
A corporate income tax is imposed on a company's taxable income or profits by the government or jurisdiction of the country where it conducts business or is registered. The corporate income tax rate refers to the total tax percentage payable to the government derived from your corporate income or taxable income or profits. Federal income tax and state corporate income tax levels can further complicate this calculation, making it essential to understand all layers of taxation.
💡 Reminder: Taxable income isn't limited to business profits. It can include a variety of sources, such as interest, dividends, rent, or royalties.
Why Corporate Tax Rates Matter
If you are an entrepreneur seeking to expand your business or incorporate your business for the first time, you want to look into jurisdictions with favorable corporate tax rates. While you initially may think to look for countries with the lowest corporate tax rates, some jurisdictions are simply part of a country but have their own tax system.
Federal corporate tax rate considerations are also crucial when assessing the overall tax burden, as they can significantly influence the final amount of corporate income taxes payable.
💡 Tip: When applying for loans, lenders often look at a business's taxable income as a measure of its profitability and ability to repay the loan. Therefore, while reducing taxable income can lower tax liabilities, it can also impact loan qualifications. It's a balancing act that small business owners need to manage carefully.
The corporate income tax rate directly impacts a company's net income, which is the total amount of money earned by the business after accounting for all expenses and taxes. A higher corporate income tax rate means a larger portion of the company's profits goes to the government, leaving less for reinvestment in the business or distribution to shareholders.
As a business grows and enters higher tax brackets, the significance of minimizing corporate income tax rates becomes even more pronounced. Implementing strategies to reduce corporate income tax can increase cash flow and fuel further business expansion.
Selection Criteria for Our List
While low tax rates are important, they're not the sole consideration when choosing a business jurisdiction. If low corporate tax were the only criterion, the following jurisdictions would be at the top of our list:
- Anguilla
- Bahrain
- Belize
- Bermuda
- Cayman Islands
- Guernsey
- Isle of Man
- Jersey
- Saint Barthelemy
- Tokelau
- Turks and Caicos Islands
- Vanuatu
- Wallis and Futuna Islands
However, infrastructure, economic stability, market access, professional services, talent availability, ease of doing business, reputation, and other practical matters should factor in.
For instance, despite its 0% corporate taxes, Tokelau has no banking facilities at all and is one of the smallest economies in the world.
Another scenario is Bermuda and the Cayman Islands, where the tax rate is virtually 0%. On the surface, that sounds good. However, companies in those jurisdictions must demonstrate to the local authorities that they have a substantial physical and economic presence locally. This makes them unlikely to be a fit for your globally expanding business.
In contrast, locations like Hong Kong, Singapore, the UAE, etc., offer superior advantages in these areas. This list is arranged in descending order of what we consider to be the most advantageous for conducting business. However, it's important to note that a lower-ranked position on this list doesn't necessarily mean it's unsuitable for your business. For example, perhaps you have little income and are not concerned about corporate income tax, but you are looking for the lowest capital gains taxes. That could make Singapore more of a fit for you than Hong Kong.
1. Hong Kong
0% - 16.5% tax
| Key Tax Information | |
| 0% Tax on Offshore Profits | Only tax profits derived from within its borders. |
| Corporate Tax Rate | • 16.5% on profits over HKD 2 million • 8.25% on profits under HKD 2 million |
| Ease of Doing Business Ranking | 3rd |
Hong Kong may be known for how it does not tax corporate profits, assuming those profits are made offshore. This is indeed true - companies can be taxed at 0% if they qualify for the Hong Kong Offshore status, an official status given by the Hong Kong Tax Department (called the Internal Revenue Department).
🔍 Learn More: See our complete guide to Hong Kong’s tax system.
However, it is important to remember that the Hong Kong government only considers income as taxable income if it was made outside of Hong Kong and all operations were carried out outside of Hong Kong, as well. This means that income derived from abroad but utilizing operations within Hong Kong will be unlikely to qualify.
However, it is important to remember that this is not the only benefit of doing business in Hong Kong. Other schemes and incentives, coupled with being ranked 3rd in the ease of doing business ranking, access to talent, and its status as a business hub to Asia, are among the reasons Hong Kong ranks so highly on this list.
🔍 Tip: Explore more details about the 0% Offshore Companies tax.
Good To Know:
- Dividends are not taxed, and there are numerous investment-related exemptions.
- Certain loans that take longer than seven years to repay can be taxed as low as 0%, otherwise it is normally at 8.25%.
- Qualified individuals offering investment management services could find that their profits are tax-exempt.
- Deductible expenses related to qualifying R&D can enjoy a tax deduction of 300% for the initial HKD2 million and 200% thereafter.
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2. Singapore
4%-17% tax
| Key Tax Information | |
| Corporate Tax Rate | 17% |
| Capital Gains Tax | 0% |
| Noteworthy Exemptions | • 75% exemption on the first SGD 10,000 of chargeable income • 50% exemption applies to the next SGD 190,000. • Various foreign income tax exemptions |
| Ease of Doing Business Ranking | 2nd |
Singapore stands as a beacon of fiscal efficiency and business friendliness, not just in Asia but globally. While the statutory corporate tax rate is at 17%, the effective rates are potentially significantly lower.
For instance, the Development and Expansion Incentive offers pioneer companies exemptional tax rates for up to 15 years, along with various incentives for specified activities and industries like R&D, intellectual property management, and financial services. Additionally, Singapore provides a wide array of tax treaties aimed at preventing double taxation and promoting favorable conditions for local taxes – not only for corporations but for individuals, too.
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"Some jurisdictions might seem attractive for their tax benefits in the short term, it's vital to consider long-term stability and legal consistency when choosing a location for business operations."
Simon Bacher
Co-Founder, Simya Solutions
Q&A
From your experience, what's a common misconception businesses have about corporate taxes in low-tax jurisdictions?
Many business owners assume low-tax jurisdictions automatically guarantee long-term stability and predictability. But that isn’t always the case. Sudden changes in tax laws could adversely affect businesses operating in those jurisdictions, potentially wiping out the anticipated tax benefits. This is why it’s important to pick a jurisdiction that fits your needs.
If you only need this specific tax framework for this specific year - for example, maybe a jurisdiction that won’t consider your income for that year as taxable income, then by all means, pick a jurisdiction that may change in a year or so. But if you prefer long-term stability and predictability, it’s prudent to pick a more mature and predictable jurisdiction.
Can you share a challenging tax scenario you navigated for a business expanding internationally and how you resolved it?
At Ling, we are based in Thailand and offer our gamified language learning app globally. We faced challenges navigating the complexities of value-added tax (VAT) or Goods and Services Tax (GST) in various countries where our app is offered. While digital products like Ling often require additional consideration due to the unique nature of their distribution and consumption, I still needed to consult tax experts to understand the VAT regulations in each country.
What practical steps would you recommend to a small business preparing for international expansion, based on your direct experiences?
For me, it always begins with understanding your own business - the ins and outs of where cash is flowing, where income is coming from, and in what form. Dividends, capital gains, money directly from customers? These details will matter when you figure out what the most favorable corporate income tax regime is and if your income is even considered taxable income.
Next, consider the structure of your expansion: a subsidiary, branch, or partnership can have different implications for taxes. Lastly, don't underestimate the importance of local guidance. Hiring experts in the target country for legal, tax, and cultural advice can save significant time and resources, ensuring a smoother transition into new markets.
3. Switzerland
11%-21% tax
| Key Tax Information | |
| Federal Corporate Tax Rate | 8.5% |
| Total Tax (Federal and Cantonal/Communal) | 11%-21% |
| Dividends | 35%* |
| Ease of Doing Business Ranking | 36th |
*various exemptions and reductions may apply under domestic law or under Switzerland's extensive network of double taxation treaties
Switzerland’s federal and communal/cantonal tax regimes may feel familiar to those who file taxes separately at different jurisdiction levels. For example, in the United States, the taxes are different at the federal and state levels.
Good To Know
- Patent Box: Offered at the cantonal level, it provides a tax break ranging from 10% to 90% on eligible income generated from patents and similar rights. Note that this does not affect the federal taxable income.
- Capital gains are included in the taxable base and taxed at the standard rate. Other provisions apply. However, special provisions may apply, such as the participation exemption for gains derived from qualifying participations.
4. British Virgin Islands
0% tax
| Key Tax Information | |
| Corporate Tax Rate | 0% |
| Capital Gains Tax | 0% |
| Branch Tax | 0% |
| Withholding Tax | 0% |
| Ease of Doing Business Ranking | Unranked |
With a flat rate of 0% tax across the board, it’s easy to see why the British Virgin Islands would be on this list. Still, there are associated annual license fees, as is common elsewhere.
⚠️Important: Though there are no corporate taxes in the British Virgin Islands, it does impose a payroll tax of 10% to 14%.
Furthermore, there are no foreign exchange control regulations, providing additional flexibility for international financial transactions.
While the United Kingdom's double tax treaties with Japan and Switzerland have been extended to the British Virgin Islands because it is a British Overseas Territory, the treaties are not used in practice. This is simply because there are already no taxes in the BVI. Still, the BVI has entered into tax information exchange agreements with various jurisdictions, enhancing its compliance with international tax cooperation standards.
5. Bahamas
0%-0.25%
| Key Tax Information | |
| Corporate Tax Rate | 0%-0.25% |
| Capital Gains Tax Rate | 0% |
| Withholding Taxes on Dividends, Interest, and Royalties | 0% |
| Foreign-sourced Corporate Income Tax Rate | 0% |
| Banks and Trust Companies Turnover Tax | 1% |
| Ease of Doing Business Ranking | 119th |
Just like the Cayman Islands, while the Bahamas is renowned for its near-zero tax regime, its reputation for historical ties to illegal financial activities and its geographical remoteness from major global business centers hinder it from ranking higher on our list.
⚠️ Note: All tax-related payments are capped at 100,000 USD. This is not a maximum tax rate, but a flat-number cap. Your business will never pay more than 100,000 USD to the Bahamian government in a fiscal year.
Good To Know
- While direct taxes on income and gains are absent, the Bahamas imposes various other taxes and fees, including VAT, Customs Duties, Stamp Duty, and Real Property Tax.
- Despite having no tax treaties, the Bahamas has entered into agreements for tax information exchange with several countries and has committed to adopting the OECD Common Reporting Standard (CRS).
6. Hungary
9% tax
| Key Tax Information | |
| Corporate Tax Rate | 9% flat rate on worldwide income for resident corporations and Hungarian-sourced income for non-resident companies |
| Withholding Tax on Dividends to Foreign Companies | 0% |
| Capital Gains Tax | Capital gains are taxed at the 9% corporate rate, with exemptions available under specific conditions. |
| Ease of Doing Business Ranking | 52nd |
Welcoming businesses with one of the EU's lowest corporate tax rates, Hungary stands out as a location for entrepreneurs and investors. With a flat 9% corporate tax rate and various tax incentives, Hungary is committed to fostering an international business-friendly environment. Its talent pool is noteworthy, especially in IT and software development.
However, its low rank of 52 on the Ease of Doing Business ranking and its relatively frequent sudden policy changes prevent it from ranking higher on our list.
Good To Know
- Since 1 January 2019, Hungary has supported group taxation, allowing consolidated tax filing for qualifying corporate groups and simplifying tax procedures.
- Significant reductions in the corporate income tax base are available for R&D investments, encouraging innovation and technological advancement.
- Foreign taxes paid can be credited against Hungarian corporate income tax, avoiding double taxation and integrating Hungary into the global economy.
7. United Arab Emirates
0%-9% tax
| Key Tax Information | |
| Corporate Tax Rate | 0%-9% |
| Capital Gains Tax | 9%** |
| Ease of Doing Business Ranking | 16th |
| Ease of Doing Business Ranking | 52nd |
**May be as low as 0% on qualifying capital gains income.
While the UAE is becoming popular for its favorable individual income tax regime, it also boasts one of the lowest corporate tax rates in the world. While the UAE is an up-and-coming global business hub, the complexity of its legal system and the unexpected changes in tax rates prevent it from ranking higher on this list.
Still, the UAE is worth being on this list thanks to its flexibility – some see the variety of legal systems and tax regimes as a benefit. Taxes may be as low as 0% if your business is incorporated in one of the UAE’s free zones or other zones with similar regimes.
Good To Know
- Capital gains realized on the disposal of qualifying shareholdings may be exempt if certain conditions are met.
- Businesses with a revenue of AED 3 million or below can elect not to be taxable, subject to meeting prescribed conditions.
Final Thoughts
When making strategic decisions about expanding or incorporating your business, it's crucial to consider not only the corporate tax rate but also the broader business environment of potential jurisdictions. While a low corporate tax rate can significantly impact your bottom line, the jurisdiction’s stability, transparency, infrastructure, market access, talent availability, and ease of doing business are equally important factors to weigh.
By taking a holistic perspective and understanding jurisdiction-specific requirements, you can make informed choices that align with your business goals and operational needs for long-term success. Remember, the right jurisdiction can provide a favorable tax environment along with the necessary support and resources to fuel your business expansion.
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