Territorial Tax Countries 2025

Under territorial taxation, only income with a local source is taxed. The definition of "local" varies: typically it means work physically performed within the country, services delivered to local clients, or business operations conducted locally. For a freelancer working remotely for foreign clients, income would generally be considered foreign-sourced and exempt. Each jurisdiction has specific rules and anti-avoidance provisions — Panama, for example, uses a simple source-based test while Hong Kong applies a more complex operations test for companies.

Some countries that are not pure territorial systems offer participation exemption regimes: dividends and capital gains from foreign subsidiaries are exempt from local tax, even though domestic income is taxed normally. The Netherlands, Luxembourg, and Singapore operate this way. These hybrid models can be very effective for holding company structures even though they don't provide the broad foreign income exemption of a true territorial system.