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Where are the Top 5 Best Tax Environments Globally?

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A country’s business tax rates and the length of time it takes to pay taxes are key factors for companies when deciding which markets to invest in. If tax rates are too high, this can cream off any potential profits the company might have made, while complex procedures for tax payments can add further costs as businesses must pay for accountants and lawyers to navigate tax legislation for them. The United Arab Emirates has the easiest tax environment globally according to The World Bank’s Ease of Doing Business 2014 (‘Doing Business 2014’) out of 189 countries. It is followed by Qatar, Saudi Arabia, Hong Kong and Singapore.

Total Time to Pay Taxes, Total Tax Rate in Selected Countries: 2012

Time (hours)/ tax rate as a % of total profits

Source: World Bank’s Ease of Doing Business 2014

Note: rankings cover the calendar year 2012

The top three ranking countries are all oil-rich countries from which their governments derive funds, reducing the need to reply on income from taxation.

1. United Arab Emirates

The time it takes to pay taxes is the lowest in the world in the United Arab Emirates according to Doing Business 2014: it takes just 12 hours per year. The bulk of its 14.9% total tax rate according to the same source is comprised of a 14.1% labour tax rate, which is a percentage of total profits. The UAE currently has no VAT tax, although there has been speculation that this may be introduced in the future. No corporation tax is applied either except to foreign banks and oil exploration companies.

2. Qatar

Qatar is the second highest ranking country out of 189 measured in Doing Business 2014 in respect of paying taxes, with a total tax rate of just 11.3% of total profits according to Doing Business 2014, comprised solely of labour taxes. It takes 41 hours per year to prepare file and pay taxes in Qatar according to Doing Business 2014, the third lowest time globally. As in the UAE there is no VAT at the time of writing due to high levels of government funds. It also operates a three tier corporation tax system in 2014, with zero rates for domestic companies, 10.0% for foreign companies except for those in the oil and gas industries, which are charged 35.0%.

3. Saudi Arabia

While it performs poorly in other others of its business environment, Saudi Arabia is ranked third globally in Doing Business 2014 in respect of its ease of paying taxes. Its total tax rate according to the same source is 14.5% of total profits, again made up mostly of labour taxes. It also requires just three tax payments per year, joint lowest out of 189 countries with Hong Kong, according to Doing Business 2014. As in Qatar and the UAE there is no VAT currently.

Two Asian countries, Hong Kong and Singapore ranks fourth and fifth:

4. Hong Kong

Hong Kong’s total tax rate is just 22.9% of total profits according to Doing Business 2014, and it takes 78 hours per year for businesses to prepare, file and pay their taxes. This compares favourably to neighbouring China’s 63.7% total tax rate and 318 hours. This has meant Hong Kong has an extremely high FDI intensity of 28.3% of total GDP in 2013, compared to just 1.4% in China. This clearly shows the impact of countries’ tax environments on their attractiveness to foreign investors.

5. Singapore

Ranked first overall in Doing Business 2014, Singapore is fifth in respect of its tax environment, international services and exports in Singapore are entitled to a zero GST tax rate. This makes it especially attractive to foreign investors and it had an FDI intensity of 20.5% in 2012, well above the region average. Requiring just five payments in a year according to Doing Business 2014, Singapore’s total tax rate is 27.1% of total profits.

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