🇫🇲 Micronesia Tax Guide — Income, Corporate & VAT Rates

The tax rates in Micronesia range from 8% to 14% for personal income tax, with a corporate tax rate of 21%, and there is no Value-Added Tax (VAT) or Goods and Services Tax (GST) in the country.

Tax System Overview

The tax system in Micronesia is based on a territorial taxation principle, where only income derived from sources within the country is subject to tax. This means that individuals and businesses are only taxed on their income earned within Micronesia, and not on their worldwide income. To be considered a tax resident in Micronesia, an individual must have a permanent home in the country, or be physically present in the country for at least 183 days in a calendar year. Companies are considered tax residents if they are incorporated in Micronesia or have their management and control in the country.

The tax system in Micronesia is relatively simple, with a focus on income tax and corporate tax. There are no wealth taxes, inheritance taxes, or gift taxes in the country. The tax authority in Micronesia is responsible for administering and enforcing the tax laws, and provides guidance and support to taxpayers through its website and offices.

Personal Income Tax

Corporate & Business Tax

• The corporate tax rate in Micronesia is 21%, which applies to all companies incorporated in the country.
• Small businesses with an annual turnover of less than $100,000 may be eligible for a reduced tax rate of 15%.
• There are no free zones or special economic zones in Micronesia, but the government offers incentives to businesses that invest in certain sectors, such as tourism and agriculture.
• Companies must register with the tax authority and obtain a tax identification number before commencing business operations.
• Companies are required to file an annual tax return, and must also make provisional tax payments throughout the year.

VAT / Sales Tax

• There is no VAT or GST in Micronesia, but a gross revenue tax applies to certain businesses, such as hotels and restaurants.
• The gross revenue tax rate is 5%, and applies to businesses with an annual turnover of more than $50,000.
• Exemptions apply to certain goods and services, such as basic food items and medical supplies.
• There are no tourist refund schemes in Micronesia, but tourists may be eligible for a refund of their gross revenue tax payments when they depart the country.

For Expats & Foreign Workers

• Tax residency rules apply to expats and foreign workers, who are considered tax residents if they are physically present in Micronesia for at least 183 days in a calendar year.
• Micronesia has a double taxation treaty with the United States, which aims to prevent double taxation and fiscal evasion.
• Expats and foreign workers are required to register with the tax authority and obtain a tax identification number.
• Social security contributions are mandatory for all employees, including expats and foreign workers.
• Expats and foreign workers may be eligible for a remittance allowance, which allows them to remit a portion of their income tax-free.
• Expats and foreign workers are required to file an annual tax return, and must also make provisional tax payments throughout the year.

Crypto & Investment Income

• Investment income, such as dividends and interest, is subject to income tax in Micronesia.
• Cryptocurrency is considered a taxable asset, and gains from the sale of cryptocurrency are subject to capital gains tax.
• Dividends received from foreign companies are subject to income tax, but may be eligible for a foreign tax credit.
• Capital gains tax applies to the sale of assets, such as real estate and shares, and is included in the income tax return.