Wednesday, August 4, 2010

Four More Flat Tax Jurisdictions

I previously posted on March 10, 2010, the chronology of countries and non-internationally recognized, but effectively self-governing, jurisdictions that have adopted a variation of the flat tax on personal income or both personal and corporate income. The most recent post of July 16 added the Seychelles to the list.

A careful search found four more flat tax jurisdictions. In alphabetical order they are Guyana, the Nagorno Karabakh Republic (a disputed territory within Azerbaijan but effectively self-governing and closely linked with Armenia), the Democratic Republic of Timor Leste, and the Pacific Island nation of Tuvalu.

1. Guyana: Guyana taxes individuals at a flat rate of 33.3% on income exceeding Guyana dollars 420,000 per annum. (US$1 = 205.45 GYD) Capital gains are taxed as ordinary income. Corporations are taxed separately at 45% if a commercial firm and 35% if a non-commercial firm. (I regard any rate above 30% as too high because high rates encourage avoidance and evasion.)

2. Nagorno Karabakh Republic: Located within the boundary of Azerbaijan, the self-governing jurisdiction, although not internationally recognized, has lowered its rate of tax to 5% on both personal and business income. The government is keen to attract investment and reduce tax evasion by encouraging those in the shadow economy to surface.

3. Timor Leste (the former East Timor was decolonized in 1975 by Portugal and secured its independence from Indonesia in 2002): Effective January 1, 2008, the government of Timor Leste imposed a flat tax of 10% on monthly taxable wages exceeding $500. (Timor Leste uses the U.S. dollar as its official currency.) The 10% rate also applies to royalties, rent, and income from prizes and lotteries. A resident business enterprise is taxed at 10% on income exceeding $6,000. A non-resident individual business enterprise is taxed at 10%, the same as a non-individual business enterprise. The rate for the previous six years (2002-07) was 30% on the latter two.

4. Tuvalu: The Pacific Ocean country of Tuvalu has been independent since 1978. Personal income tax is charged at a flat rate of 30% with a tax-free threshold of the Australian dollar equivalent of US$2,220. Corporate tax rates on all taxable income are also set at 30%. Non-resident individuals are charged 40%.

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