Eleven countries levy no personal income tax at all: the United Arab Emirates, Qatar, Kuwait, Bahrain, Oman, Saudi Arabia, Brunei, Monaco, the Bahamas, Vanuatu and Nauru. Several British Overseas Territories and Crown Dependencies belong in the same category without being sovereign states. In nearly every case the money comes from somewhere else — hydrocarbons, a financial sector, or indirect taxes the resident does not notice.
The Gulf Group
Six of the eleven are Gulf states, and they share a model. Oil and gas revenue accrues to the state, the state funds services and public employment, and citizens are not taxed on income.
That arrangement has a name in political science — the rentier state — and a well-documented implication. Where a government does not depend on taxing its population, the usual bargain between taxation and representation does not arise in the same way. The phrase no taxation without representation runs in reverse.
The model has been under strain since the oil price falls of the 2010s, and the Gulf states have been adding taxes that are not income taxes:
- Value added tax was introduced across the Gulf Cooperation Council from 2018. Saudi Arabia raised its rate to 15 per cent in 2020; the UAE and Bahrain charge 5 and 10 per cent respectively.
- Corporate tax arrived in the UAE in June 2023 at 9 per cent on business profits above a threshold, a significant departure for a jurisdiction built on its absence.
- Excise taxes on tobacco, energy drinks and sugary drinks are levied at high rates across the region.
- Expatriate fees — charges on employers per foreign worker, and on dependants — function as a payroll tax in all but name in Saudi Arabia.
Oman is the state to watch. It has legislated a personal income tax on high earners due to take effect toward the end of the decade, which would make it the first Gulf country to break the pattern.
Monaco, Tax-Free Since 1869
Monaco abolished personal income tax in 1869, when the Société des Bains de Mer casino had become profitable enough that the prince could dispense with taxing his subjects. The decision turned a small principality into a permanent magnet for wealth.
There is one large exception. Under a 1963 convention with France, French citizens resident in Monaco remain liable for French income tax unless they were resident before 1957. The agreement followed a confrontation in which Charles de Gaulle blockaded the principality's borders over exactly this issue.
Monaco funds itself principally through VAT, levied at the French rate, along with corporate profits tax on companies earning substantially outside the principality, and state revenues from the casino and real estate. Residency requires proving means and taking accommodation in the most expensive property market in the world, which is a form of entry fee.
Brunei
Brunei levies no personal income tax, funded by oil and gas from fields discovered in the 1920s that made the sultanate one of the wealthiest states in Asia per head.
Citizens receive free education and healthcare and subsidised housing and fuel. The country also levies no VAT, which makes it unusual even in this group. Corporate tax applies, and the oil and gas sector is taxed at a substantially higher rate.
Brunei's difficulty is the same one facing the Gulf: reserves are finite, output has declined from its peak, and the economy is among the least diversified anywhere.
The Island Financial Centres
The Bahamas has no income tax, no capital gains tax, no inheritance tax and no corporation tax. It funds itself through customs duties — historically very high, since almost everything is imported — along with VAT introduced in 2015 and now at 10 per cent, and licence fees from its financial sector.
Vanuatu likewise levies no income tax, relying on VAT, import duties and, controversially, a citizenship-by-investment programme that has at points been a substantial share of government revenue. The European Union suspended visa-free access for Vanuatu passport holders over concerns about that programme.
Nauru's history is the cautionary tale of the group. Phosphate mining made it briefly one of the richest countries per head in the world; the deposits were exhausted, the sovereign fund was mismanaged, and the country has since depended on offshore processing arrangements with Australia and on the sale of fishing licences.
The Territories That Are Not Countries
Many lists of no-income-tax jurisdictions include places that are not sovereign, and the distinction matters legally.
- The Cayman Islands, Bermuda, the British Virgin Islands, Turks and Caicos and Anguilla are British Overseas Territories with no income tax.
- Guernsey, Jersey and the Isle of Man are Crown Dependencies that do levy income tax, but at low flat rates with a cap on the total payable.
- Wallis and Futuna, a French overseas collectivity, levies no income tax.
Several of these have been reshaped by international pressure — the OECD's work on base erosion and the global minimum corporate tax rate of 15 per cent has narrowed the advantage of a zero-rate jurisdiction for companies, though not for individuals.
What No Income Tax Does Not Mean
The absence of an income tax is not the absence of taxation, and the overall burden in these countries is often less different than it looks.
A resident of the Bahamas pays import duties on nearly every physical good they own, embedded in the shelf price. A resident of Saudi Arabia pays 15 per cent VAT. A resident of Monaco pays French-rate VAT and a property market that prices in the tax advantage.
Economists call this incidence: the question is not what the tax is called but who ultimately bears it. A zero income tax alongside high consumption taxes shifts the burden from earners to spenders, which tends to be regressive — it falls more heavily, as a share of income, on people with less of it.
The Citizenship Trap
For most people, moving to a no-income-tax country does not end their tax liability, because liability usually follows residence.
The United States is the significant exception, taxing its citizens on worldwide income regardless of where they live, subject to a foreign earned income exclusion and foreign tax credits. An American in Dubai still files. Eritrea operates a diaspora tax of around two per cent, collection of which has been the subject of United Nations resolutions.
Everyone else generally taxes on residence, which is why the practical route to a zero tax bill involves establishing genuine residence and severing ties with the former country — and why several of these jurisdictions sell residence permits.
Countries Often Listed but Wrong
A few names recur on internet lists and do not belong.
The Maldives introduced a personal income tax in 2020. Qatar belongs on the list for salaries but does tax some business activity. Somalia has an income tax in law that is largely uncollected, which is a different condition from not having one. Andorra had no income tax until 2015 and now levies one at rates up to 10 per cent, which is low but not zero.
The list changes, and it has been getting shorter. Two decades ago it would have included Andorra, the Maldives and, with an asterisk, several Caribbean jurisdictions that have since introduced direct taxation under international pressure.
What They Charge Instead
Set the eleven side by side and the substitute revenue is remarkably consistent in shape, if not in source.
- Resource rent — the six Gulf states and Brunei, where hydrocarbon receipts flow to the state before any citizen is taxed.
- Consumption — VAT across the Gulf since 2018, VAT in the Bahamas since 2015 and in Vanuatu, and Monaco's French-rate VAT.
- Trade — import duties, which in the Bahamas historically supplied the largest single share of revenue and which raise the price of essentially every physical good on the islands.
- Status — selling residence, citizenship or company registration, which is how Vanuatu, and to a lesser extent Monaco, monetise the tax position itself.
- Licences — fishing rights in Nauru and the Pacific states, and financial-sector fees in the Bahamas.
None of these is a free lunch. Consumption and trade taxes are paid disproportionately by lower earners; resource rent is finite and volatile; and selling status is only viable while other countries treat the document as worth something, which Vanuatu discovered when the European Union withdrew visa-free access.
Why the Model Is Narrowing
Every country on this list depends on an unusual revenue source, and most of those sources are under pressure. Hydrocarbon demand has a foreseeable peak. Offshore financial secrecy has been eroded by automatic exchange of information between tax authorities. Citizenship-by-investment schemes are being restricted by the countries whose visa-free access made them valuable.
The Gulf's response has been to build sovereign wealth funds large enough to outlive the oil, and to introduce consumption taxes while leaving income untouched — preserving the political settlement while widening the revenue base. Whether a rentier state can add income tax without also adding the political claims that historically came with it is the open question, and Oman is about to run the experiment. Many of the same jurisdictions appear in our ranking of the smallest countries, and the countries with the highest GDP per capita shows what these tax positions are worth in practice.
