The absence of VAT in a country does not mean the absence of indirect taxation. Several jurisdictions compensate with high customs duties, sector-specific taxes, or levies on oil revenues. Understanding the mechanism of tax substitution is as useful as knowing the relevant territories, as the real cost of establishment depends on the overall tax burden, not just the displayed VAT rate.
Sales tax, GST, and VAT: tax mechanisms that are often confused
VAT is a multi-stage tax collected at each link in the value chain, with a right to deduction upstream. The American sales tax does not work this way: it applies only at the retail stage, without a deduction mechanism.
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The United States therefore does not have a federal VAT. Each state sets its own sales tax rate, and several of them apply a zero rate on certain categories of goods (basic food, medicines, books). The practical result for a final consumer may resemble an absence of consumption tax, but the legal framework differs radically.
Another frequent confusion: the GST (Goods and Services Tax) applied in Singapore or Australia. This mechanism is the functional equivalent of European VAT. Singapore has gradually increased it in recent years, moving the country away from the image of a territory without indirect taxation. For a complete overview, check the list of countries without VAT in the world.
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Territories attached to a state but outside the scope of VAT
Some territories benefit from a derogatory regime compared to their parent state. These cases are poorly documented in general articles, even though they present direct operational interest for businesses.
- Hong Kong does not levy any VAT or general consumption tax, while mainland China applies a VAT that can reach significant rates on goods and services.
- Guyana and Mayotte are outside the scope of French metropolitan VAT. Services provided in these territories are exempt from VAT under French tax law, making them de facto VAT-free zones for certain operations.
- The Faroe Islands and Greenland, attached to Denmark, have autonomous tax regimes and are not subject to Danish VAT or the common VAT system of the European Union.
We observe that these territories are often omitted from the classic lists of countries without VAT, even though they represent concrete options for structuring certain activities.
Gulf countries: the gradual end of the zero VAT model
The Persian Gulf region has long embodied the zero VAT model. This era is coming to an end. The United Arab Emirates has introduced a VAT at a reduced rate, ending decades of total absence of consumption tax. Saudi Arabia has followed a similar path, with rate increases in just a few years.
Only a few Gulf states have not yet formalized a VAT, but the regional trend is clear: the tax framework is evolving under the pressure of post-oil economic diversification. We recommend never basing an establishment strategy on the current absence of VAT in these jurisdictions without checking the ongoing legislative schedule.
Kuwait, Qatar, Bahrain: situations to watch
Kuwait regularly appears on lists of countries without VAT. Its introduction has been under discussion for several years. Qatar has also not formalized a VAT to date. Bahrain, on the other hand, has taken the plunge.
The trap for a business would be to establish itself by betting on a temporary tax advantage. The regional convergence towards a common VAT rate within the Gulf Cooperation Council makes any medium-term projection uncertain.
Tax havens and countries without VAT: two distinct concepts
The European Union publishes a list of non-cooperative tax jurisdictions, updated regularly. As of the last update in February 2026, ten territories are on this list, including Panama, the U.S. Virgin Islands, Vanuatu, and Russia. Vietnam and the Turks and Caicos Islands were recently added.
Being on this list has no direct link to the existence or absence of VAT. A country can apply a VAT and be classified as non-cooperative for reasons of transparency or anti-tax erosion standards. Conversely, a country without VAT is not automatically a tax haven.
This distinction is fundamental for European businesses. Transactions with jurisdictions on the EU blacklist can trigger enhanced reporting obligations, withholding taxes, or exclusions from certain preferential regimes, regardless of the local VAT regime.
Practical consequences for export invoicing
A French company invoicing a service to a client established in a country without VAT must still comply with mandatory mentions on its export invoices. The absence of VAT at the recipient does not exempt from mentioning the exemption or from complying with the territoriality rules set out by the General Tax Code.
- For services between taxable persons (B2B), VAT is due in the country of the recipient, even if that country does not have formal VAT.
- For deliveries of goods outside the EU, export is exempt from French VAT subject to customs documentation.
- The obligations for tax representation in France have been eased for companies established in certain third countries since the decree of February 16, 2021, which added 19 territories to the list of exempt countries.
The absence of VAT in the destination country does not necessarily simplify the obligations of the French seller. It shifts them to other formalities, particularly customs and reporting. The apparent tax gain often masks an underestimated administrative complexity, especially for SMEs that do not have a structured tax department.