Exploring Tax Havens: Countries Where Dividends Are Tax-Free

For many years, the IT-OFFSHORE team has been helping companies optimise their businesses. Today, we want to discuss the dividend tax and jurisdictions that can help you avoid it.

The dividend tax is a financial instrument governments use to collect a portion of profits distributed by companies among their stockholders. Dividends are taxable in most countries, and they decrease investors' actual profit, making companies less attractive to them. However, dividend tax doesn't exist in some jurisdictions. A company registering in such a place allows the stockholders to maximise their profit because they get every penny of their dividends without tax deductions. This increases the company's investment attractiveness and simplifies financial planning. It can also stimulate investors to reinvest their money in the development of the company.

We often recommend that clients pay attention to several regions in this context. In the Caribbean, it's the Cayman Islands, the Bahamas, Antigua, the British Virgin Islands, and Barbuda. These jurisdictions don't have dividend tax, but they don't have corporate tax. Also, many businesses should consider jurisdictions like the UAE, Gibraltar, Hong Kong, and Singapore. Each of these states has pros and cons, but they all provide a beneficial environment for businesses.

It's important to understand that choosing a jurisdiction is a complex task that requires a thorough investigation of multiple factors. These include tax benefits, reputational risks, reporting requirements, banking infrastructure, etc. Selecting the right jurisdiction can greatly enhance your company's competitiveness in the global market.

The Caribbean states

The Caribbean region is famous for its favorable tax regimes. The main jurisdictions include Antigua and Barbuda, the British Virgin Islands, the Cayman Islands, and the Bahamas. They all offer zero dividends and corporate taxes. The major advantages of these jurisdictions are maximum stockholders' profits, attractiveness for foreign investments, and simple financial planning.

The Bahamas is an archipelago of over 700 islands in the Atlantic Ocean. It is famous for its beaches and tourist destinations. The country's economy greatly depends on tourism and financial services. The Bahamas is known for its financial sector confidentiality, although it has increased transparency in recent years. Taxation in this country has the following benefits:
•    Corporate tax - 0%.
•    VAT - 10%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.
 
The Cayman Islands is a British Overseas Territory in the western part of the Caribbean. This state is one of the world's largest offshore financial centers, especially popular among hedge funds. The jurisdiction is known for its flexible regulation environment, although it has recently strengthened its measures to combat money laundering. Taxation in this country is nearly inexistent:
•    Corporate tax - 0%.
•    VAT - 0%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

The British Virgin Islands (BVI) is a British overseas territory in the Caribbean. It consists of over 50 islands and islets. It is a popular jurisdiction for registering international companies and offers modern infrastructure and professional services for the corporate sector. The BVI is another country that one can call a tax-free offshore:
•    Corporate tax - 0%.
•    VAT - 0%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

Antigua and Barbuda is an island state in the Caribbean which is geographically a part of the Lesser Antilles. It's a constitutional monarchy recognising the British monarch as the head of state.
The Antigua and Barbuda tax system also has favorable rates:
•    Corporate tax - 0%.
•    VAT - 15%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

Company registration in the Caribbean has some risks despite its attractiveness from the tax perspective. Our team often encounters situations when the rules of doing business and taxation quickly change under the pressure of international regulators. In some cases, the reporting and informational disclosure requirements suddenly tighten.
Our specialists developed a complex approach to service our customers to minimise these risk factors and always meet current requirements.

The United Arab Emirates

The UAE is a federation of seven emirates. It is situated on the east coast of the Arabian Peninsula. The UAE actively diversifies its economy, decreasing its dependency on the oil industry. In particular, Dubai has already become the global center of trade, finance, and tourism.

The absence of a dividend tax in the majority of the Emirates is a consequence of the general strategy of economic diversification and decreasing dependency on the oil industry. This political approach helps attract international companies and investments to the various economic sectors. Taxation for foreign companies registered in the UAE is as follows:
•    Corporate tax - 0-9%.
•    VAT - 5%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

Gibraltar

Gibraltar is a British Overseas Territory. It is situated on the southern tip of the Iberian Peninsula. Gibraltar's tax policy aims to attract international business and investments. Regarding dividend tax, Gibraltar offers a favorable regime: dividends paid by the state's resident companies are tax-exempt for both local and foreign stockholders. This makes Gibraltar an attractive jurisdiction for holding companies and international investors striving to optimise their tax structure. Gibraltar has one of the most favorable tax systems among all European countries:
•    Corporate tax - 12.5% (territorial tax system principle is in action).
•    VAT - 0%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

Hong Kong

Hong Kong is a particular administrative region (SAR) of China situated on the country's south-eastern coast. Historically, it was developing as a key trade port. Now, Hong Kong has become one of the world's largest financial centers. Despite the handover of sovereignty to China in 1997, Hong Kong maintains a high level of autonomy in the economic and legal aspects.
Hong Kong's tax policy is based on the territorial principle and features the absence of a dividend tax. Such an approach is a crucial element of the strategy to maintain the state's status as an international financial center.
Hong Kong's tax system:
•    Corporate tax - 16.5%.
•    VAT - 0%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

Singapore

Singapore is a city-state in Southeast Asia. It gained independence in 1965. The country has quickly become one of the world's leading financial and tech hubs.
Singapore's tax system is one of the most competitive in the world. The country applies a unified taxation system: dividends paid by Singaporean companies are tax-exempt for the shareholder since the company has already paid the income tax.
Taxation in Singapore:
•    Corporate tax - 17%.
•    VAT - 8%.
•    Dividend tax - 0%.
•    Capital gains tax - 0%.

The list of countries that don't collect dividend taxes is not very long. Nevertheless, if you have any questions on this topic or need to consult a professional about possibilities for your business, the IT-OFFSHORE team is always ready to help. We will gladly share our experience and provide complex solutions for your business!

Author Bio

The author is Sabitova Yaroslava. Sabitova graduated from MSU in 2023 and is currently a consulting expert at IT-OFFSHORE.