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In most countries, the income of both businesses and their staff are subject to tax at varying rates depending on the country’s legislation. A single tax base can be charged to no less than two different taxes. An employer’s income can be subjected to corporate taxes and VAT for example. There is however a kind of tax paid by organizations that is not widely known and is a source of many controversies. This is referred to as employer taxes. These are taxes that an employer is expected to pay in respect of his staff income.

  • The Concept of Employer Taxes

Usually, on a worker’s income, the worker is expected to pay income tax. In addition to this, there are additional payments that are required to be withheld by the employer on the employee’s income. Such amounts serve as contributions towards various schemes and plans such as the Social Security contribution, the pension fund, unemployment fund, health insurance, sick leave, maternity/paternity leave and many more. In the majority of the world, the employer is also expected after withholding these amounts, to make additional contributions to the scheme on behalf of the employee. These additional contributions are what is known as Employer Taxes. They are taxes paid by the employer and calculated as a percentage of the employee’s income. The amount calculated serves as a contribution in addition to what had been paid from the employee’s income. What constitutes employer taxes is entirely dependent on the state and could include contributions to a pension fund, social security fund or any other contribution scheme as stipulated by the government such as contributions towards healthcare insurance, unemployment fund, etc. 

It is difficult ascertaining when these contributions constitute tax and when they do not. As a rule of thumb, whenever the contributions are mandated by the government of the country and regulated by the state, they are classified as taxes.

Employer tax rates differ depending on the country you are in and the laws guiding the payment of it. They also could be administered on a flat rate basis or based on earnings level. In the United States, employer tax is guided by the Federal Insurance Contributions Act which requires the employer to contribute a maximum contribution of 6.2% to the social security and 1.3% to the Medicare, amounting in total to 7.5%. This rate is still fairly low when compared with the rate of other countries or the OECD average of 20.68% in 2020. Mexico employer tax rates are as high as 51% in 2020, while the global average is at 15.34%.

Despite the high rates been taxed by a large number of nations, there are a few countries where companies pay little or no amount of money in contribution to these mandatory funds. Some countries even have no concept of such funds or are exclusively funded by the government. This makes such countries an attractive place for foreign establishments. Establishing a foreign company in such countries is even easier with the availability of PEOs such as WeHireGlobally

10 Countries with the Lowest Rates

This list comprises countries in the 0%-2% range of employer’s taxes.

Armenia

This European aligned developing country is one of the few countries without any employer taxes scheme. The Armenian economy is widely based on industry and agriculture, the latter accounting for about 30% of the state’s Gross Domestic Product (GDP). The per-capita income of the state is currently $4212, based on the 2019 estimate; the government of Armenia is however making considerable efforts in terms of economic reforms to ensure the growth of the country.

Taxes pertaining to social security do not apply to companies in Armenia. The employer is only obliged to withhold 2.5% of the salary of workers in a certain group. The employer is also expected to submit to the tax authorities’ monthly reports on income and amount of tax and social contributions withheld from the staff salary. There is however a corporate tax at the rate of 18%.

Armenia encourages private businesses in the country and foreign companies will find it relatively easy to get registered and functional in no time at all. There are no minimum capital requirements and the registration fee is nil. Establishing a business in the state can either be done in person or remotely through the assistance of an Employer of Records such as WeHireGlobally. They would be responsible for a seamless transition of your company and when the business is fully functional, help with the preparation of payrolls and ensure tax compliance where necessary.

Bangladesh

The eighth most populous country in the world with a GDP of $365 billion is located in South Asia and shares borders with India. The state’s largest industry is its textile industry which is also its largest export. The country also boasts of a growing pharmaceutical industry.

The tax system in Bangladesh is quite sophisticated, and the income of expatriates generated withing the state are taxed. Corporate tax rates of 32.5% are charged on company income generated within the country. There is however, no social security concept in Bangladesh. Both the employees and the organizations they work for do not need to contribute any amount to a social security scheme. Instead, the government is responsible for any social security provisions made. The company is only expected to withhold income taxes from the staff salary.

Following the adoption of a liberal industrial policy, Bangladesh has become a growing foreign investment hub. Foreign companies are constantly emerging in the country to take advantage of its diversified economy and with its large population of over 163 million people, there can be no shortage of workers, whether locals or foreigners.

As an employer of labour, you can register your company with the country in whatever form you would like, branch offices and representative offices are also available options. The minimum capital requirement is $1, however, if you plan to employ foreign workers, a remittance of $50000 must be made. Usually, a physical Bangladesh address is required to register a company, so also is a registered agent who provides the necessary advice needed to make the process easier.

Botswana

‘Land of the Tswana people’ used to be on the list of the poorest nations in the world, but through sound fiscal policy measures and its abundance of precious minerals, it is now an upper middle-income country with a fast-growing economy and a GDP per capita of $7,817. The country’s revenue majorly comes from mining and finance. It has very little foreign debt and is also ranked as the least corrupt country in Africa.

With a high level of economic freedom and encouraging foreign participation, it is no wonder that there has been an influx of foreign investment into the country. Some sectors are however closed to foreign participation and reserved solely for the nation’s indigenes.

Organizations that are looking to establish an office in Botswana can do so by registering with the Botswana Authority. Minimum capital requirement is $1 and you as the employer are expected to provide a tax certificate and file annual tax returns after incorporation. The corporate tax rates differ depending on the type of business being established with the highest being a branch office tax rate of 30%. Your organization can outsource the registration process, tax filing and employee recruitment process to an external agency. The employing company has no obligation to pay any tax on payroll or social security on behalf of its employee.

  • New Zealand

This mountainous island country in the southwestern Pacific Ocean has a population of over 5 million was the last lands to be inhabited. The Mãoris later settled in the land, though today, they barely make up 20% of the population. New Zealand is a highly developed nation with a transparent government and economic freedom. The service sector, industrial sector and agricultural sector are the major components of the economy making up. The country has a varying species of plants, animals and even fungi, being one of the most biologically diversified country, though they are constantly endangered by human activities.

The economy is mostly dependent on international trade, food being its major export. Majority of the population of working age are highly educated. As a country with a high level of economic freedom, it is a hot spot for foreign investment offering stability and low inflation rate. The registration process is also straightforward and fast, taking approximately 3 days. It was ranked by OECD as the country with the third largest cross-border foreign partners’ transactions. Businesses generally have 3 available company options when trying to start up a business in New Zealand. Registration must also be done with the IRD as an employer if you intend to pay workers in the country. 

Tax laws are constantly being reformed within the country and currently there is an optional social security tax scheme for the employees (KiwiSaver). An organization is only mandated to contribute to the scheme of its staff has already opted in. The country also operates a superannuation pension fund.

Denmark

Denmark is a developed, high income, Scandinavian country with a population of about 6 million. There is a high standard of living with a robust healthcare system and well-developed education system. A unitary state with two autonomous areas of Greenland and the Faroe Islands, Denmark ranks as the 20th most competitive economy in the world. It has a highly diversified economy and the state’s economy is funded by the service and manufacturing sector majorly. Denmark is also a major exporter of goods such as machinery and other services. Denmark has frequently been ranked as a happy country. It equally has one of the most talented workforces in the world.

Denmark has a fragmented employment legislation and an efficient tax system. No minimum wage is set and there is no specific social security tax. However, employers are expected to contribute between DKK 8000-12000($1200-2000) per annum per employee under the Arbejdsmarkedets Tillægspension (ATP) contribution, this can be opted out of depending on the totalization agreement between Denmark and the home country of the employer. There is also a special payroll tax on companies that provide VAT-exempt services. The rate is dependent on the ratio of the VAT-exempt services provided but currently stands at 15.2%.

Foreign businesses can be set up in the country with no specific requirements, however, existing trade agreements must be considered. Incorporation can be done online. The capital requirements range between DKK 50,000-500,000 ($7800-78000) Companies can either employ their staff directly, though obtaining legal advice is recommended, or they can contract the services of a PEO to take up the responsibility of hiring staff. WeHireGlobally is a global PEO that has a registered office in Denmark and can be contracted to do this.

Eswatini

A landlocked country in South Africa, formerly known in English as Swaziland, Eswatini is one of the smallest countries in Africa and still developing. It is an absolute monarchy with only members of the parliament being elected. The economy of the country is well diversified with its revenue sources ranging from agriculture, to mining, textile and sugar manufacturing and government services (which makes up about 50% of the GDP). Despite this there has been slow economic growth. Most of the country’s economic estimates are tied to the South African economy. The company is open to foreign trade and has trade ties with the US and EU.

There are major health issues in Eswatini such as HIV/AIDS and tuberculosis, this has affected its population which is mostly made up of the youthful age. This is however an advantage, as they make up most of the work force.

A foreign company is expected to be registered within 21 days of starting its operations. The registration fees are the same as for a local company. A form J confirming the firm’s directors must also be submitted within 21 days of incorporation. Foreign companies are expected to file annual returns accompanied by the required fees. The employer is also permitted to bring in foreign staff provided they have necessary permits.

There was a recent restructuring of the tax system in Eswatini during the COVID-19 lockdown period, this was done to help reduce the debts of the nation. However, in the revamped tax system, there are still no requirements for the employer to contribute to any social security scheme.

Cayman Islands

The beautiful country made up of three islands is situated south of Cuba. It has a population of about 71 thousand. The country is a popular Caribbean vacation island with its own artificial reef, and attracts tourists from all over the world. Cayman’s nominal GDP ranks as the 5th highest in the world, though this could very well be affected by artificial corporate income figures. This is due to the country’s status as a tax haven, hence the tendency for foreign companies to be incorporated in it.

The economy is dominated by financial services and tourism, with its largest export being recreational boats. Of all the Caribbean countries, Cayman citizens have the highest standard of living with a GNI per capita of $58100.

There is a limited workforce, with a lot of work permits being issued in recent years. In 2019, on average, approximately 21000 expatriates had been issued work permits. Establishing a foreign company is through a simplified process. There are a number of options regarding the type of organization to set up. There might however be a need to bring in your own workers. To further simplify the process, hiring of staff can be outsourced to WeHireGlobally.

Qatar

Sharing its only land border with Saudi Arabia to the south, Qatar has a GDP of $97,262, ranking as the 6th highest in the world after Ireland. Qatar has the third-highest oil and gas reserves in the world but is also the largest greenhouse gas emissions in the world. Due to its oil wealth, the citizens have very good living conditions, and has a high standard and cost of living compared to other countries in the same region.

The Qatar government does not charge a lot on several facilities including electricity, water and telephone. There are no taxes levied in the country except for the import tax. This means that there are no employer taxes either, no social security contributions, no pension contributions. Laws in Qatar are extremely strict as they are based on the Sharia law. It also relies heavily on foreign workforce.

Company laws also require that Quatari citizens hold 51% of the shares of any venture. You can start up a new business following the above requirement with a minimum startup capital of QAR 200,000 (about $55,000). If setting up a branch, it can be 100% foreign owned.

South Africa

Officially the Republic of South Africa and predominantly a black nation, this country is home to diverse cultural heritages and a wide range of plants and animals. It is the third-largest economy in Africa and has seen major industrial development in recent years. The state is a large exporter of diverse mineral resources such as gold, platinum and iron ore. The mining industry serves as one of its main income sources. It also has a growing list of potential sectors that can be invested in. South Africa is ranked 58th safest tax haven in the world according to the 2020 Financial Secrecy Index. 

There is no formal social security system, hence no tax is expected from organizations established in it or their workforce. There are no employer taxes, there is only a 1% contribution to the Unemployment Insurance Fund which is calculated as a percentage of each employee’s wages.

Due into the country’s many tax legislations and directives, payroll preparations and tax filing can be outsourced to a registered firm operating in the country.

Before a business can commence operations in South Africa it is required to register with the Companies and Intellectual Property Commission, after which it makes the appropriate tax filing with the South African Revenue Service. Employees are expected to register for income tax with the SARS, this can also be done by the outsourced firm.

Georgia

No, not Georgia State in the USA, but Georgia the country. The country is a part of the Caucasus region located between Asia and Europe with a population of 3,728,573 people. Georgia is known for its rich culture that is visible in its music, folklore, and art, it is also one of the oldest wines producing regions in the world. The landscape is beautiful bearing a lot of ancient landmarks and architecture.

During the post-soviet era, Georgia faced severe economic downturn in which the agricultural and industrial sector collapsed. However, in the early 21st century, the economy began to grow again and by 2007 its GDP growth rate was 12% which marked it as one of the fastest growing economies, ranked as 12th in terms of economic freedom. Currently, the per-capita GDP is $4,285. There has been rapid human development as well, a major contributory factor being education. Though the telecommunication sector is underdeveloped, there is significant opportunity for growth and development there, as well as in the tourism sector.

Georgia is a great place to set up a business as it has a very talented and enthusiastic workforce. It also has very favorable tax legislations. There are currently no social security contributions, however there is a pension scheme that is financed in part by the employer. Companies are required to transfer 2% of their employee salary to a private pension fund on behalf of the employee.

The country could currently make use of foreign investment, therefore setting up a business there would be highly beneficial considering the favorable business climate. There are no capital requirements the registration fee is low, and the process is smooth. The tax laws are favorable, but it is still advisable to get an expert firm to handle all tax related issues.

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